FINANCE CHP4

Question 1

A conventional loan
a. follows the secondary market’s underwriting guidelines
b. has an adjustable interest rate
c. has normal seller financing terms
d. is not insured or guaranteed by any gov’t entity

Answer 1

d. is not insured or guaranteed by any gov’t entity

Question 2

A loan repaid with periodic payments of both principal and interest so the entire loan amount is paid in full at the end of the loan term is a
a. annualized loan
b. conventional loan
c. fully amortized loan
d. partially amortized loan

Answer 2

c. fully amortized loan

Question 3

All are representative of 15-year mortgages, EXCEPT
a. the borrower loses his Federal tax deduction faster because his loan is paid off earlier
b. higher interest rates
c. higher monthly payments
d. lower interest rates

Answer 3

b. higher interest rates

Question 4

Private mortgage insurance is required when the loan to value ratio (LTV) is
a. 75% or higher
b. over 80%
c. 90% or higher only
d. over 95% only

Answer 4

b. over 80%

Question 5

Private mortgage insurance typically covers __ of the loan amount
a. 20-25%
b. 50%
c. 75-80%
d. 100%

Answer 5

a. 20-25%

Question 6

If a borrower’s down payment is large enough, she can avoid PMI. Which statement is TRUE
a. her loans will have a higher interest rate
b. her loan will take longer to repay
c. her loan will have lower monthly payments initially
d. her loan is riskier than a loan with PMI

Answer 6

c. her loan will have lower monthly payments initially

Question 7

Which would likely have the highest PMI cost
a. 80% loan
b. 90% loan
c. 95% loan
d. house purchased with cash

Answer 7

c. 95% loan

Question 8

PMI must be canceled
a. at the discretion of the borrower
b. only if the lender is satisfied the buyer is no longer a credit risk
c. when a home has been paid down to 78% of its original value for loans made after July 1999
d. whenever a new appraisal is ordered, regardless of the value

Answer 8

c. when a home has been paid down to 78% of its original value for loans made after July 1999

Question 9

The provision that penalizes borrowers who pay off loans sooner than agreed is a
a. alienation clause
b. assumption clause
c. incorporation clause
d. prepayment penalty clause

Answer 9

d. prepayment penalty clause

Question 10

Lenders are often willing to charge lower interest rates for 15-year mortgages because the
a. borrower is always a better risk
b. interest rate is fixed for a longer period of time
c. loan funds will be repaid more quickly
d. loan qualifications are much more stringent

Answer 10

c. loan funds will be repaid more quickly