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Understanding Fixed-Rate and Variable-Rate Mortgages

This lesson explains the different types of mortgage loans, focusing on fixed-rate and variable-rate mortgages. A fixed-rate mortgage has a constant interest rate and monthly payments throughout the loan term, while a variable-rate mortgage can have fluctuating payments. The example given involves Joseph, who secures a fixed-rate mortgage of $90,000 with an 8% interest rate, resulting in a consistent monthly payment of $660. This guide helps clarify how mortgage payments are calculated.

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Understanding Fixed-Rate and Variable-Rate Mortgages

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  1. Lesson 4: Paying the Mortgage Consumer Math p. 88-89

  2. Paying the Mortgage Several kinds of mortgage loan exist. The most common loan is called a fixed-rate mortgage. The interest rate and the monthly payment on principal and interest remain the same until the loan in paid. On a variable-rate mortgage, the interest rate and the monthly payments may change periodically.

  3. Example Joseph wants to buy a home. He has enough money for a large down payment. He took out a fixed-rate mortgage for $90,000, to be paid in 30 years. The bank charges him 8% interest. What is his monthly payment? Joseph finds the answer quickly by using the following table. He looks down the column for 8%. He looks across the row for $90,000. Where these two lines meet, he reads, “660.” His monthly payment will be $660.00.

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