Ch 10 - Finance Techniques

Question 1

What type of loan allows the borrower to make periodic payments of interest only for the term of the loan, usually from 1 to 5 years?

Answer 1

Term loan or a straight note

Question 2

What type of loan provides for periodic payments, usually monthly, which include principal and interest?

Answer 2

Fully amortized loan

Question 3

A loan where the repayment schedule calls for a series of amortized payments followed by a balloon payment at maturity

Answer 3

Partially amortized loan

Question 4

The relationship between the amount of money a lender is willing to loan and the lenders estimate of the market value of the property that will serve as security

Answer 4

Loan-to-value ratio

Question 5

Charging a rate of interest in excess of that permitted by law

Answer 5

Usury

Question 6

An added loan fee charged by a lender to make the yield on a lower-than-market-interest VA or FHA loan competitive with higher-interest conventional loans

Answer 6

Discount points

Question 7

A fee in terms of a percentage of the loan about, stated by lender

Answer 7

Origination fee

Question 8

The difference between the properties value and the total debt

Answer 8

Equity

Question 9

Vacant land commands the lowest L/V…

Answer 9

Calling for the largest down payment

Question 10

True or false:

Most acquisition loans are exempt from state usury laws

Answer 10

True

Question 11

True or false:

On a conventional loan, the lender will loan up to 95% of value with private mortgage insurance

Answer 11

True

Question 12

True or false:

Loan-to-value ratios are based on the lenders perception of the risk involved

Answer 12

True

Question 13

True or false:

The rule is that the price or value, which ever is lower, is applied to the L/V ratio

Answer 13

True

Question 14

True or false:

Before the depression, most real estate loans were straight-term mortgages

Answer 14

True

Question 15

True or false:

Straight term loans are generally longer in duration than amortized loans

Answer 15

False

Question 16

True or false:

The fully amortized loan has been the most widely used method of repayment since the 1930s

Answer 16

True

Question 17

Which type of loan is also called a constant or equal payment mortgage?

Answer 17

Fully amortized loan

Question 18

What is the amount of interest in a fully amortized loan computed on?

Answer 18

The principal balance at a fixed rate

Question 19

As the loan matures, the amount applied to the principal ______ each month while the amount of interest _______ until the full amount of principle has been repaid

Answer 19

Increases

Decreases

Question 20

What is the basic rule of economics?

Answer 20

The higher the risk, the lower the L/V. Making a larger down payment will result in a lower L/V

Question 21

What is it called when the value increases in the loan amount decreases?

Answer 21

Equity build up

Question 22

What is the final payment of a loan called?

Answer 22

Balloon payment

Question 23

For the borrower, what is the advantage and disadvantage of a partially advertise loan?

Answer 23

The advantage is that for 10 years the monthly payments will be smaller than if the loan was completely amortized in 10 years.

The disadvantage is that the balloon payment due at the end of the 10th year might be the borrowers financial downfall.