Ch 28: Types of Loans

Question 1

How is the interest rate in an adjustable-rate mortgage (ARM) determined?

Answer 1

The interest rate is linked to an economic index.

Question 2

How does a reverse annuity mortgage operate?

Answer 2

With a reverse annuity mortgage (RAM), the lender is making payments to the borrower. The RAM allows older property owners to receive regular monthly payments from the equity in their paid-off property without having to sell.

Question 3

What type of mortgage loans are offered to borrowers who have poor credit and the lender views them as higher risk?

Answer 3

Subprime Loans

Question 4

What type of loans use fraud or deception to hide the true obligations of the loan from the borrower?

Answer 4

Predatory Loans

Question 5

What type of fee is used to compensate loan officers?

Answer 5

Origination points

Question 6

What is it called when a penalty is assessed if the mortgage is prepaid within a certain time period?

Answer 6

Prepayment Penalty

Question 7

Buyer Alice wants a loan to pay for the purchase of the property and to buy major appliances. What type of loan is Alice wanting?

Answer 7

A package loan is one that finances the purchase of a home along with the purchase of personal items, such as a washer, a dryer, a refrigerator, an air conditioner, carpeting, and furniture.

Question 8

What type of mortgage feature allows a new buyer to assume the seller’s mortgage?

Answer 8

Assumability

Question 9

What type of loan allows a buyer to borrow funds from the seller in addition to the lender?

Answer 9

Purchase Money Loan

Question 10

What type of loan allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan?

Answer 10

Wrap Around Mortgage

Question 11

How does a seller leaseback transaction work?

Answer 11

A seller leaseback, also called a seller rent back or sale-leaseback, is a transaction in which a person sells property and then leases or rents from the new property owner. The seller no longer owns the property, but lives in the property for the length of time stated in the rental agreement.

Question 12

What is the major difference between a mortgage assignment right and a mortgage novation right?

Answer 12

Assignment cannot transfer the mortgage obligation, but novation can transfer both rights and obligations.

Question 13

What occurs when the original lender transfers the mortgage loan to a third party?

Answer 13

A mortgage assignment

Question 14

What represents the lenders cost of doing business?

Answer 14

The margin

Question 15

What is a technique in which the buyer borrows from the seller in addition to the lender?

Answer 15

A purchase money loan

Question 16

With an adjustable-rate mortgage (ARM), the interest rate is linked to:

Answer 16

an economic index.

Question 17

A loan which allows a borrower who has an existing loan to get another loan from a second lender without paying off the first loan is called:

Answer 17

a wraparound loan.

Question 18

What type of mortgage is a loan that has one large final payment due when the loan matures?

Answer 18

A balloon mortgage

Question 19

What is a transaction in which a person sells property and then leases or rents from the new property owner?

Answer 19

A seller leaseback

Question 20

What term describes a new obligation, but with the same terms, including interest rate, of the former mortgage loan?

Answer 20

Novation

Question 21

With what type of loan does the borrower pay a different amount with each payment?

Answer 21

A straight amortized loan

Question 22

With what type of mortgage loan are the monthly payments allocated only to interest?

Answer 22

A straight mortgage

Question 23

An agreement between a buyer and seller of property in which the buyer makes payments toward full ownership but the title is held by the owner until the full payment is made is called:

Answer 23

a land contract.

Question 24

A type of mortgage that will shorten the loan by calling for half the monthly payment every two weeks is called:

Answer 24

a biweekly mortgage.