Unit 7: Methods of Principal & Interest Payment

Question 1

What is a term (straight) loan?

Answer 1

A loan in which no principal is paid during the loan, only interest, and the entire principal is paid back at the end of the term (6 months-2 years)

Question 2

What is a partially amortized (balloon) loan?

Answer 2

A loan with equal payments of principal and interest but at the end of the term (1 - 5 years) there is a lump sum balloon payment

Question 3

What is a fully amortized loan?

Answer 3

A loan with equal payments of principal and interest but there is no large balloon sum at the end (15 - 30 years). The loan balance is zero.

Question 4

What is another name for a fully amortized loan?

Answer 4

Fixed rate

Question 5

What is an adjustable-rate mortgage loan?

Answer 5

A loan in which the interest rate is periodically increased or decreased based on a set economic index or indicator..

Question 6

How is the interest rate of a adjustable-rate mortgage loan calculated?

Answer 6

index + margin = new rate

Question 7

Who should not get an adjustable-rate mortgage?

Answer 7

Anyone on a set income, such as a retiree.

Question 8

What is a budget mortgage?

Answer 8

A loan that has the monthly payments including debt service plus tax and insurance escrow.

Question 9

What is another name for a budget mortgage?

Answer 9

PITI loan

Principal
Interest
Taxes
Insurance

Question 10

What kind of mortgage would be best for a furnished property?

Answer 10

Package mortgage

Question 11

Which loan type is used by developers?

Answer 11

Blanket mortgage

Question 12

What is a blanket mortgage?

Answer 12

A mortgage that covers more than one parcel of property.

Question 13

What clause is commonly part of a blanket mortgage?

Answer 13

Partial release clause that allows individual properties to be released from the lien as the balance is paid down.

Question 14

What is a construction mortgage?

Answer 14

A loan to finance the cost of constructing a building, usually providing that the loan funds will be advanced in installments as the work progresses.

Question 15

What is another name for a construction mortgage?

Answer 15

Interim loan

Question 16

Who can get a reverse mortgage?

Answer 16

Homeowners that are 62 years or older and has considerable home equity.

Question 17

What is a reverse mortgage?

Answer 17

Homeowners can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment or line of credit.

Question 18

Why would a homeowner take out a home equity loan?

Answer 18

Because they are wanting to do home improvements.

Question 19

What is a home equity loan?

Answer 19

Owners borrow against the equity in their home. The borrowed full amount is calculated based on the difference between the home’s current market value and the homeowner’s mortgage balance due.

Question 20

According to the Truth in Lending Act, how many days do homeowners have the right to rescission?

Answer 20

3 days

Question 21

What is a home equity line of credit (HELOC)?

Answer 21

It works like a credit card and allows the borrower to obtain further advances at a later date.