Finance Borrowing and Debt

Question 1

Most common loan type?

Answer 1

Amortized loan
It is repaid with equal periodic installments
The amount of principle and interest changes over loan but payment remains uniform.

Question 2

What is an interest only loan?

Answer 2

Interest is paid but no payments towards the principle

Question 3

Two methods used to calculate principal and interest?

Answer 3

Tabular method- interest payments calculated progressively using updated balance
Remaining balance method- calculate the remaining balance after nth payment.

Question 4

What does leasing allow you to do?

Answer 4

Pay a portion of the equipment cost over a specified term plus a charge for rent, taxes and fees

Question 5

Whats the difference between fixed and variable rate mortgages?

Answer 5

Fixed-interest rate is constant

Variable- interest rate fluctuates with prime during term

Question 6

Is there a penalty regarding closed mortgages?

Answer 6

Yes there is a penalty if the mortgage is payed off early, usually 3 months interest

Question 7

Advantages of interest only loans?

Answer 7

smaller payments during interest only term.

Question 8

Disadvantages of interest only loans?

Answer 8

no equity built
higher payments later
high risk for lender.