Final answer:
Common mortgage payment methods include fixed-rate, adjustable-rate, interest-only, and principal and interest mortgages. The choice of method influences monthly payment amounts and overall cost of the loan. Factors like interest rates and inflation also play significant roles in the benefit of borrowing versus lending.
Step-by-step explanation:
The common types of mortgage payment methods include:
- Fixed-rate mortgage: This is where the interest rate remains the same throughout the term of the loan, typically for 15 or 30 years. Payments are predictable since the interest rate doesn’t change.
- Adjustable-rate mortgage (ARM): In this case, the interest rate is fixed for a specific period and then adjusts periodically, which can result in changes to the monthly payment amount.
- Interest-only mortgage: Borrowers pay only the interest on the loan for a set period, after which they begin to pay off the principal.
- Principal and interest mortgage: Payments are split between repaying the principal (the amount borrowed) and the interest on that principal.
For example, calculating the monthly payment of a $1,000,000 house loan over 30 years with a nominal interest rate of 6% convertible monthly would require using the formula for a fixed-rate mortgage to determine the regular payment amount. Additionally, understanding the impact of interest rates and inflation is essential when considering the benefits of borrowing versus lending. For instance, it may be more beneficial for borrowers when interest rates are low and inflation is high, thereby decreasing the real value of future repayments.