Deck 13: Types of Financing

Question 1

Each of the following statements about open-end mortgage clauses is true EXCEPT

A) using an open-end clause, the new amount borrowed is added to the mortgage balance.
B) they are used in government loans like DVA and FHA.
C) they are used in conventional mortgages.
D) funds borrowed using an open-end clause are reamortized over the remaining like of the mortgage.

Answer 1

B
This is not true of open-end mortgage clauses.

Question 2

What feature in an adjustable rate mortgage protects the borrower against very large monthly payment increases?

A) Index rate
B) Adjustment period
C) Interest rate cap
D) Margin

Answer 2

C
Interest rate caps protect the borrower against very large monthly payment increases.

Question 3

The interest rate of a loan from a local savings and loan may be increased or decreased during the life of the loan. This is an example of

A) a variable interest rate.
B) escalated interest.
C) graduated interest.
D) percentage interest.

Answer 3

A
Increasing or decreasing the interest rate during the life of the loan would be characteristic of a variable interest rate.

Question 4

An elderly couple is "house rich, money poor". To obtain money now while still living in their magnificent home, they should look for a

A) negative amortization.
B) an adjustable rate mortgage.
C) a reverse annuity mortgage.
D) a graduated payment mortgage.

Question 5

All of the following may be used for setting ARM interest rates EXCEPT

A) one-year U.S. Treasury securities.
B) six-month Treasury bills.
C) cost of funds to thrift institutions.
D) Gross National Product is not used to set ARM interest rates.

Question 6

When two or more properties serve as collateral for the same loan, it is called a

A) blanket mortgage.
B) tandem mortgage.
C) security mortgage.
D) blended rate mortgage.

Question 7

The phrase "taking back paper" applies to

A) a cash sale.
B) conventional loans.
C) VA loans.
D) seller financing.

Question 8

When considering a ARM loan, the lender must explain to the borrower, in writing, the

A) worst-case scenario.
B) best-case scenario.
C) average-case scenario.
D) respective credit report.

Question 9

When an existing loan at a low interest rate is refinanced by a new loan at an interest rate between the current market rate and the rate of the old loan, the result is a

A) combined rate.
B) blended loan.
C) wraparound loan.
D) merged loan.

Question 10

Equity sharing is based on the concept of someone who has assets sharing those assets in exchange for

A) a share of the ownership.
B) tax benefits.
C) both a and b.
D) neither a nor b.

Question 11

In a graduated payment mortgage, the graduated part is the

A) interest rate.
B) monthly payment.
C) maturity date.
D) entire loan is graduated.

Question 12

A new home developer who is including appliances with the sale of each house most probably would assist the buyer in obtaining a

A) blanket mortgage.
B) shared appreciation mortgage.
C) equity sharing mortgage.
D) package mortgage.

Question 13

In order to make adjustable rate mortgage loans more attractive to borrowers, lenders offer

A) lower initial interest rates.
B) gifts such as appliances, trips, etc.
C) lower insurance rates.
D) lower down payments.

Question 14

A loan arrangement whereby a lender extends a line of credit is

A) a buy-down mortgage.
B) an open-end mortgage.
C) a wraparound mortgage.
D) a purchase money mortgage.

Question 15

A builder bought all 20 lots in a subdivision from the developer, who carried most of the purchase price on one loan. To sell the lots, he must include a

A) reverse loan clause.
B) sale-lease back clause.
C) package mortgage clause.
D) partial release clause.

Question 16

Prior to the introduction of adjustable rate mortgages, the FHLBB approved the use of

A) variable rate mortgages.
B) renegotiable rate mortgages.
C) both a and b.
D) neither a or b.

Question 17

Construction loans are

A) long term, low risk.
B) long term, high risk.
C) short term, high risk.
D) short term, low risk.

Question 18

Which of the following involves the greatest risk to a lender?

A) First mortgage
B) FHA loan
C) Construction loan
D) VA loan

Question 19

A blended-rate loan arrangement is designed to

A) raise the rate of interest to the buyer.
B) lower the sales price of the property.
C) attract buyers who are discouraged by high interest rates.
D) pay off a loan sooner.

Question 20

The interest rate of an adjustable rate mortgage may rise or fall based on the

A) interest rate cap.
B) adjustment period.
C) index.
D) margin.

Question 21

The first step toward mortgage loans with adjustable interest rates came in the late 1800s.

Question 22

An individual who is contemplating the purchase of a mortgage as an investment should have

A) the property appraised.
B) a credit check made on the borrower.
C) the title searched.
D) all of the above.

Question 23

Under the terms of a shared appreciation mortgage

A) the loan is made at a below-market interest rate.
B) the lender received a portion of the property's appreciation.
C) both a and b.
D) neither a nor b.

Question 24

A payment cap leaves open the amount the borrower's monthly payment can increase in any one year.

Question 25

When should a purchase money mortgage properly be recorded?

A) Before the deed
B) After the deed
C) At the same moment as the deed
D) Upon full payment

Question 26

One of the main differences between a land sales contract and a purchase money mortgage is

A) the passing of title.
B) interest charged.
C) time between payments.
D) the term of the loan.

Question 27

A company wishing to raise capital by selling its real estate but still remaining as the occupant of the property would enter into

A) a sale and lease-back.
B) an option agreement.
C) an equity mortgage.
D) a contract for deed.

Question 28

Regulation Z requires creditors to state the maximum interest rate that an ARM loan may adjust to.

Question 29

An overencumbered property would be one with a market value of

A) $125,000 with a first mortgage of $75,000 and a second mortgage of $26,000.
B) $375,000 with a first mortgage of $25,000 and a second mortgage of $200,000.
C) $120,000 with a first mortgage of $110,000 and a second mortgage of $15,000.
D) $49,500 with a first mortgage of $20,000 and a second mortgage of $1,000 and a third mortgage of$2,000.

Question 30

By law lenders are required to disclose an interest rate cap.

Question 31

A contract for deed on residential property

A) allows transfer of title to the purchaser at the inception of the mortgage.
B) transfers title to the purchasers at the fulfillment of the conditions of the mortgage.
C) does not provide for transfer of title.
D) requires the owner to occupy the property.

Question 32

ARM loans with teaser rates are avoided by

A) mortgage insurers.
B) secondary market buyers.
C) both a and b.
D) neither a nor b.

Question 33

The margin is for the lender's cost of doing business, risk of loss on the loan, and profit.

Question 34

The most popular index is the local bank prime rate.

Question 35

The index stays constant over the life of the loan but the margin will vary.

Question 36

For a successful wraparound, it is necessary to have an existing mortgage with

A) a below-market interest rate.
B) a due-on-sale clause.
C) an above market interest rate.
D) an alienation clause.

Question 37

By far the most common adjustment period in an ARM is six months.

Question 38

The benefit of an ARM is that ARMs carry an initial interest rate that is lower than the interest rate on a fixed-rate mortgage of similar maturity.

Question 39

For the borrower there are no disadvantages to an ARM loan.

Question 40

A mortgage taken by a seller from the buyer in part payment of the purchase price of real estate is known as

A) seller financing.
B) a conflict of interest.
C) usury.
D) a second trust deed.

Question 41

Under a construction loan, also called a(n)____________________ loan, money is advanced as construction takes place.

Question 42

It is possible for individuals to buy second lien notes.

Question 43

A package mortgage involves several properties under the same mortgage.

Question 44

When monthly payments are not sufficient to pay the interest due and the difference is added to the loan balance, this is called ____________________ amortization.

Question 45

Equity sharing provides that in return for providing financing, the lender wants to share in some of the benefits normally reserved for the equity holder.

Question 46

Equity mortgages are typically first lien mortgages that are used to tap the increase in equity resulting from rising home prices and first loan principal reductions.

Question 47

A ____________________ mortgage encompasses existing mortgages and is subordinate to them.

Question 48

A mortgage secured by two or more properties is called a ____________________ mortgage.

Question 49

With a purchase made by an installment contract or land contract title immediately passes to the purchaser.

Question 50

The ____________________ is added to the index rate for the lender's cost of doing business.

Question 51

With a ____________________ mortgage, the lender makes monthly payments to the homeowner.

Question 52

The interest rate on an ARM is tied to a(n)____________________ rate.

Question 53

The type of ARM loan with an enticingly attractive below-market initial rate is called a ____________________ rate adjustable.

Question 54

A loan where items classed as personal property are included with the real estate is called a(n)____________________ mortgage.

Question 55

"Rich uncle " financing is a variation of equity sharing.

Question 56

FIRREA and the Community Reinvestment Act provided strong incentives for private lenders to engage in affordable housing loans.

Question 57

With the ____________________ payment mortgage, the interest rate and maturity are fixed but the monthly payment gradually rises.

Question 58

The Asset Integrated Mortgage is designed to create a savings from the down payment and is applicable to borrowers who wish to make minimal down payments.

Question 59

Some real estate agents and lenders refer to a loan that is carried back by a seller as a purchase money mortgage.

Question 60

The objective of a graduated payment mortgage is to help borrowers pay off their loans more rapidly.

Question 61

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a right, for a given period of time, to buy, sell, or lease property at present price and terms

Question 62

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a note is accepted by a seller instead of cash

Question 63

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a limit on how much a borrower's payment can increase in any one year

Question 64

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a refinanced loan wherein the lender combines the interest rate of the existing loan with a current rate

Question 65

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a mortgage secured by real and personal property

Question 66

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a mortgage repayment plan that allows the borrower to make smaller monthly payments at first and larger ones later

Question 67

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
results when monthly interest exceeds monthly payment an the difference is added to the principal

Question 68

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
the ceiling to which the interest rate on a loan can rise

Question 69

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a payment by the seller to the lender in order to reduce the interest for the buyer

Question 70

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a loan wherein the lender makes monthly payments to the property owner who later repays in a lump sum

Question 71

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a debt instrument that encompasses existing mortgages and in subordinate to them

Question 72

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
an arrangement whereby a party providing financing gets a portion of the ownership

Question 73

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
the amount of time that elapses between interest rate changes on a loan

Question 74

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a method of selling and financing property whereby the buyer obtains possession but the seller retains the title

Question 75

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
to voluntarily give up a higher mortgage priority for a lower one

Question 76

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a mortgage secured by two or more properties

Question 77

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a situation where the loans against a property exceed the value of the property

Question 78

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a financing arrangement whereby an owner-occupant sells the property and then remains as a tenant

Question 79

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a mortgage loan on which the rate of interest can rise and fall with changes in prevailing interest rates

Question 80

Choose the one most appropriate answer for each.
a.adjustment period
k.interest rate cap
b.adjustable rate mortgage (ARM)
l.negative amortization
c.blanket mortgage
m.option
d.blended-rate loan
n.overencumbered property
e.buy-down mortgage
o.package mortgage
f.carryback financing
p.payment cap
g.contract for deed
q.reverse mortgage
h.equity mortgage
r.sale and leaseback
i.equity sharing
s.subordination
j.graduated payment mortgage
t.wraparound mortgage
a mortgage wherein the lender extends a line of credit based on the amount of equity in a person's home