IA week 12

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23 Terms

1
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How do interest rates affect home prices?
Higher rates reduce the amount buyers can borrow, lowering prices
2
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What determines a mortgage monthly payment conceptually?

The loan amount, the interest rate, and the length of the loan.

3
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Why does a rate increase reduce how much house you can afford?

Because the same monthly payment can only support a smaller loan when interest rates are higher.

4
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What tradeoff exists between interest rates and loan amount?
Higher rates mean lower loan amounts for the same payment
5
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What is total interest paid on a mortgage?
The sum of all payments minus the original loan amount
6
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Why do shorter mortgages usually have less total interest?
The loan is outstanding for fewer years
7
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Why might someone still choose a 30-year mortgage over 15-year?
Lower monthly payments and flexibility
8
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What is opportunity cost in mortgage decisions?
The return you could earn elsewhere with the same money
9
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Why might making extra mortgage payments be good?
It reduces total interest and shortens loan life
10
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Why might extra payments be a bad idea?
If alternative investments earn a higher return
11
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What does location risk mean in real estate?
Value depends heavily on location characteristics
12
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Why is home inspection important?
It identifies risks that affect value and future costs
13
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What is cycle risk in real estate?
Risk related to economic and market cycles
14
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Why does timing matter in real estate purchases?
Market conditions affect price more than the asset itself
15
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What does BATNA mean in negotiation?
Best alternative if negotiation fails
16
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Why is BATNA important when buying a home?

It sets your walk-away point and leverage in neogtiations

17
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Why is comparing lenders by APR important?
APR reflects the true cost including fees
18
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Why should borrowers limit credit inquiries?
Too many inquiries can lower credit scores
19
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What are the four Cs lenders use to evaluate borrowers?
Capacity capital character and collateral
20
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What does capacity measure in lending?
Ability to afford loan payments
21
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What does the front-end ratio measure?
Housing expenses relative to gross income
22
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What does the back-end ratio measure?
Total debt obligations relative to gross income
23
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How do interest rates affect a borrower’s cost?

Higher rates increase monthly payments and reduce affordability