Chapter 15

Question 1

The most typical adjustment interval on an adjustable rate mortgage (ARM) once the interest begins to change is?

Answer 1

One Year

Question 2

A charecteristic of a partially amortized loan is?

Answer 2

A balloon payment is required at the end of the loan term

Question 3

If a mortgage is to mature (i.e. become due) at a certain future time without any reduction in principle this is called?

Answer 3

Interest only mortgage

Question 4

The dominant loan type originated by most financial institutions is the?

Answer 4

Fixed payment, fully amortized mortgage

Question 5

Which of the following statements is true about 15-year and 30-year fixed payment mortgages?

Answer 5

Assuming that they can afford the payments on both mortgages, borrowers should choose a 30-year mortgage over an otherwise identical 15 year loan if the discount rate (opportunity cost) exceeds the mortgage rate

Question 6

Adjustable rate mortgages (ARM’s) commonly have all the following except?

Answer 6

Inflation index

Question 7

The annual percentage rate (APR) was created in?

Answer 7

The Truth In Lending Act (TILA) in 1968

Question 8

On a level-payment loan with 12 years (144) payments remaining, at an interest rate of 9% and with a payment of $1,000, the balance is?

Answer 8

$87,871

Question 9

On the following loan, what is the best estimate of the effective brrowing cost if the loan is prepaid in six years?

Loan: $100,000
Interest: 7%
Term: 180 months
Up-front costs: 7 percent of loan amount

Answer 9

8.7%

Question 10

Lenders yield differs from effective borrowing costs (EBC) because?

Answer 10

EBC accounts for additional up front expenses that lender’s yield does not