Fixed Interest Rate Mortgage Loans

Flashcards covering key concepts and vocabulary related to fixed interest rate mortgage loans.

Periodic interest rate (i)

The interest rate applied per compounding period.

Number of compounding periods (n)

The total number of times interest is applied over the loan term.

Present value (PV)

The current worth of a future sum of money given a specified rate of return.

Periodic payment (PMT)

The amount paid at regular intervals during the loan term.

Mortgage interest rate

The cost of borrowing funds for a mortgage expressed as a percentage.

Default Risk

The risk that a borrower will be unable to make the required payments.

Interest Rate Risk

The risk that interest rates will rise, affecting loan costs.

Prepayment Risk

The risk that borrowers will pay off their loans early, affecting returns.

Liquidity Risk

The risk of not being able to sell an investment quickly without a loss.

Legislative Risk

The risk that changes in laws will affect the ability to enforce terms of contracts.

Fully Amortizing Loan

A loan where regular payments fully pay off the principal and interest over its term.

Partially Amortizing Loan

A loan where payments do not cover the entire principal by the end of the term.

Interest Only Loan

A loan where the borrower pays only interest for a specified period.

Negative Amortizing Loan

A loan where the payments do not cover the interest, leading to an increasing loan balance.

Annuity

A financial product that pays a fixed stream of payments to an individual.

Effective annual rate (EAR)

An interest rate that is adjusted for compounding over a given period.

Nominal Interest Rate

The stated interest rate on a loan, not accounting for inflation.

Real Interest Rate

The interest rate after adjusting for inflation.