Econ Borrowing Money Notes

APR

annual percentage rate

Principal

total amount owed (excluding interest)

Interest

the cost of borrowing money

credit score

how risky you are in the eyes of a lender

mortgage

loan for buying a house

secured loan

backed by something the bank can sell (collateral)

fixed rate mortgage

the rate stays the same through the duration of the loan

term

length of the loan

equity

the difference between sale value and principal

HEL

Home Equity Loan - borrow it all upfront and immediately begin paying interest

HELOC

Home Equity Line of Credit- pay as you borrow (accrue interest on principal)

adjustable rate

rate changes and monthly payments change too (HELOC & HEL)

credit score

Your profile of risk in the eyes of lenders (300-850), Utilization, history, missed payments, types of credit, # of recent inquiries.

Why do people borrow money?

to raise their standard of living

What do these things impact? Length of loan and amount of loan

interest rate

Unsecured loans have a _____ rate of interest

higher

higher risk loans have ____ interest rates

higher

Every time interest rates drop 1%, it makes sense to…

refinance

Why is Paying extra principal each month good?

saves a lot of extra interest and shortens your term

What loan term should you pick?

Get the shortest loan you can afford

Kids are ____

expensive

What pays extra dividends?

money put towards principal

The higher your credit score, the _____ your interest rate

lower