CHAPTER FOUR: CONVENTIONAL LOANS

Question 1

____ ____ mortgage- a fully amortizing loan in which interest rate on the note remains the same throughout the term of the loan.

• the monthly mortgage payments remain constant.
• the principal in each monthly mortgage payment increases over the term of the loan until the loan is fully amortized.
• the most common type of mortgage used to purchase a home.

Answer 1

Fixed Rate Mortgage

Question 2

___ ____ mortgage- a straight, non-amortizing loan in which the lender receives only interest during the term of the loan and the principal is repaid in a lump sum at maturity.

• the monthly mortgage payments consist of entirely interest (no principal) and remains constant.
• the loan does not amortize over the life of the loan.
• is riskier than a fixed rate mortgage since the full loan amount is due at maturity.

Answer 2

interest only mortgage

Question 3

___ ___ mortgage - a mortgage loan which bears interest at a rate subject to change during the term of the loan, predetermined or otherwise.

• the initial monthly mortgage payments are calculated as if the loan is a 30 year fixed rate mortgage.
• the monthly mortgage payment increases once the interest rate adjusts and until the interest rate cap is reached.
• riskiest types of loan because the monthly payment changes month to month.

Answer 3

Adjustable Rate Mortgage