Deck 4: Fixed Interest Rate Mortgage Loans

Question 1

Risk is an important component of interest rates.Which of the following risks is not a determinant of interest rates?

A) Default Risks
B) Interest Rate Risks
C) Institutional Risks
D) Marketability Risks

Answer 1

Institutional Risks

Question 2

One of the first amortizing mortgages was the constant amortization mortgage.Which of the following characterized the components of the CAM payment over the life of the loan?

A) A Above.
B) B Above.
C) C Above.
D) D Above.

Answer 2

C Above.

Question 3

Determining a loan balance on a CPM is a simple future value of an annuity problem.

Answer 3

False

Question 4

Assuming all APRs equal,the effective interest rate on a loan is highest when:

A) The loan has no points and a 30 year maturity and is prepaid in five years
B) The loan has no points and is prepaid at maturity
C) Points are charged and the loan is paid off at maturity in 30 years
D) Points are charged and the loan has a 30 year maturity but prepaid in five years

Question 5

At the end of five years,calculating the loan balance of a constant payment mortgage is simply the:

A) present value of a single amount.
B) future value of a single amount.
C) present value of an ordinary annuity.
D) future value of an ordinary annuity.

Question 6

One of the most popular amortizing mortgages today is the constant payment mortgage.Which of the following characterizes the components of the CPM payment over the life of the loan?

A) A Above.
B) B Above.
C) C Above.
D) D Above.

Question 7

Which of the following is not a determinant of interest rates for single family residential mortgages?

A) The demand and supply of mortgage funds
B) Inflation expectations
C) Liquidity
D) The demand and supply of apartments

Question 8

With every CPM,the effective costs of borrowing are higher than the stated rate of the loan.

Question 9

In comparison to the first month's payment of a CAM,the first month's payment of a CPM:

A) ishigher.
B) islower.
C) thesame.
D) cannot be determined with this information.

Question 10

Points are also known as:

A) Third party charges
B) Reduction in payment amount
C) Loan discount fees
D) Reduction of mortgage yield

Question 11

Lenders and investors worry about default,interest rate,marketability,and liquidity risks.

Question 12

Which one of the following is TRUE about Prepayment penalties:

A) They are never used with residential mortgages
B) They lower the effective cost if the loan is repaid before maturity
C) They are equivalent to charging additional points for the loan
D) They are not included in the APR calculation

Question 13

Because its payment stream looks like a staircase,which loan is sometimes referred to as "stepped-up" financing due to prearranged payment increases?

A) CAM
B) CPM
C) GPM
D) ARM

Question 14

Over the life of the loan,which of the following loans would continually have a lower principal balance given each loan had the same term,principal amount,and average interest rate?

A) CAM
B) CPM
C) GPM
D) Cannot be determined with this information

Question 15

Demand for a mortgage loan is considered:

A) Stable Demand
B) Derived Demand
C) Interest Rate Demand
D) Nominal Demand

Question 16

Which of the following closing costs do not increase the lender's effective loan yield?

A) Discount points
B) Prepayment penalties
C) Title insurance charges
D) Origination fees

Question 17

Which mortgage would a borrower prefer to have during inflationary and recessionary periods?

A) A Above.
B) B Above.
C) C Above.
D) D Above.

Question 18

APR stands for which of the following:

A) Annual Percentage Rate
B) Amortized Percentage Regulator
C) Accrued Percentage Rate
D) Annual Percentage Regulator

Question 19

One difference between the constant amortizing mortgage (CAM)and the constant payment mortgage (CPM)is the interest paid and loan amortization relationship.With a CAM,the loan amortization and interest paid are directly related and with the CPM the loan amortization and the interest paid are inversely related.

Question 20

Inflation makes very little difference to lenders of and investors needing money.

Question 21

Graduated payment mortgage are loans available to people who have graduated from college.

Question 22

Origination fees are tax deductible as an interest expense.

Question 23

Truth-in-lending requires the borrower to tell the truth on the loan application.

Question 24

The annual percentage rate,disclosed at the loan closing,closely approximates the borrower's true cost of funds.

Question 25

The APR for a loan assumes it is prepaid after ten years.

Question 26

Prepayment penalties increase the lender's mortgage yield and discount points decrease it.

Question 27

Borrowers with fixed rate mortgages generally benefit if actual inflation is higher than expected inflation.

Question 28

With a reverse annuity mortgage the borrower receives payments from the bank.