Final answer:
Mortgage costs can be categorized into monthly costs, initial/one-time costs, varied costs, and initial and periodic costs. Understanding these costs, such as the down payment, homeowners insurance, and property taxes—some of which may be managed through an escrow account—is key to financial literacy in the home-buying process.
Step-by-step explanation:
When considering the costs associated with a mortgage, it's important to drag each mortgage cost to the correct category based on the nature of the expenses. Here are the appropriate categorizations:
- Category A (Monthly Costs): Homeowners Association Fee, Homeowners Insurance, Prepaid Interest, Monthly Payment
- Category B (Initial/One-time Costs): Down Payment, Real Estate Agent Commission, Closing Costs, Property Taxes
- Category C (Varied Costs): Homeowners Association Fee (can be monthly or yearly), Closing Costs (one-time), Monthly Payment (monthly), Homeowners Insurance (generally part of the monthly escrow payment)
- Category D (Initial and Periodic Costs): Property Taxes (periodic), Prepaid Interest (initial), Real Estate Agent Commission (one-time), Down Payment (one-time)
Understanding the different types of mortgage costs is essential for financial literacy, especially when purchasing a home. A down payment is typically 20% of the home's purchase price, and escrow accounts can simplify payment of Homeowners Insurance and Property Taxes by including them in the monthly mortgage payment. It's also critical to be aware that lower down payments might require additional mortgage insurance, which can increase overall costs.