Question 1

Which one of these situations creates negative amortization?

Accepted Answer

Negative amortization occurs when the borrower's mortgage payment does not cover the interest due and the unpaid interest is added to the principal balance of the mortgage, leading to a higher outstanding balance. Option B describes this scenario, where the borrower pays less than the monthly interest on the mortgage, leading to negative amortization. The other options mentioned do not lead to negative amortization.

Question 2

A home equity loan may also be referred to as a ____________ mortgage.

Accepted Answer

A home equity loan is also known as a second mortgage because it is an additional loan taken out on top of the existing mortgage on the property.

Question 3

If you sell your home without a real estate agent,you should still employ the services of a(n):

Accepted Answer

Even if you sell your home without a real estate agent, it is advisable to hire a real estate lawyer to ensure that all legal aspects of the transaction are handled properly. They can review and prepare contracts, handle any disputes, and ensure that all necessary paperwork is filed correctly.

Question 4

What is prepaid interest charged by a mortgage company called?

Accepted Answer

Prepaid interest charged by a mortgage company is called points. Points are fees paid by a borrower to a lender at closing in exchange for a lower interest rate on their mortgage loan. Each point is typically equal to 1% of the total loan amount.

Question 5

The purpose of a rate cap with an adjustable rate mortgage is to:

Accepted Answer

A rate cap restricts the amount by which the interest rate can increase, providing protection to the borrower from large increases in interest payments. This also helps to provide some stability in the monthly mortgage payments, making budgeting and planning easier for the borrower.

Question 6

The most common service provided by a real estate agent when selling your home is:

Accepted Answer

The most common service provided by a real estate agent is screening potential buyers to ensure that they are qualified to purchase the home and have serious intentions to do so. Real estate agents typically do not provide legal advice or make needed repairs themselves, and qualifying buyers for a mortgage is typically handled by a lender. Attending home inspections may be part of a real estate agent's services, but it is less common than screening potential buyers.

Question 7

Which of the following is an example of a conventional mortgage?

Accepted Answer

A conventional mortgage is a traditional mortgage that is not insured or guaranteed by the federal government. A fixed-rate mortgage is a type of conventional mortgage where the interest rate stays the same for the entire term of the loan. FHA mortgages are government-insured loans, buy-downs involve paying extra points upfront to lower the interest rate, shared-appreciation mortgages involve sharing some of the equity with the lender, and home equity loans are a type of second mortgage.

Question 8

Todd Foley is applying for a $100,000 mortgage.He can select either a $600 monthly payment with no points or a $520 payment with two points.How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?

Accepted Answer

100,000 F1F1F1S1F1F1F10 2% = 2,000; 2,000 / (600-520) = 25

Question 9

Refinancing of a mortgage is recommended when:

Accepted Answer

Refinancing a mortgage is recommended when interest rates fall, as this allows borrowers to obtain a lower interest rate and potentially save on monthly mortgage payments. The other options given do not necessarily indicate a need for refinancing.

Question 10

Which of the following would increase the speed of equity growth for a homebuyer?

Accepted Answer

Choosing a 15-year mortgage instead of a 30-year mortgage would increase the speed of equity growth as it results in higher monthly payments and a faster repayment of the loan. This would reduce the amount of interest paid over the life of the loan and increase the equity built up in the home. The other options either result in higher costs (option B, D, E) or a lower down payment (option A) which would slow down the equity growth.

Question 11

A newly married couple is having trouble affording a home.What type of mortgage arrangement would reduce the monthly payment as a result of an interest rate subsidy from a builder or real estate developer?

Accepted Answer

A buy-down mortgage allows for a builder or real estate developer to subsidize the interest rate for the first few years of the loan, reducing the monthly payment for the borrower. This could be helpful for a newly married couple who may not have a large income yet. FHA-insured loans, balloon mortgages, shared-appreciation mortgages, and growing-equity mortgages do not have an interest rate subsidy from a builder or real estate developer.

Question 12

The purpose of title insurance is to:

Accepted Answer

The purpose of title insurance is to protect an owner from unknown claims on the property. It provides coverage for any defects or issues with the property title that may have been missed in the initial title search. This can include issues such as liens, fraud, or conflicting wills. Title insurance does not transfer ownership, reduce property value, protect against changes in mortgage interest rates, or cover closing costs.

Question 13

Which of the following is an example of a closing cost?

Accepted Answer

Title insurance is typically considered a closing cost as it is a fee paid at closing to protect the buyer from any unknown liens or claims against the property. The other options listed (home inspection fees, realtor fees, earnest money, and down payment) are not typically considered closing costs.

Question 14

Which of the following expenses is paid from an escrow account?

Accepted Answer

Property insurance is typically paid from an escrow account. Escrow accounts are set up by lenders to hold funds that will later be used to pay property taxes and insurance premiums. This helps ensure that these expenses are paid on time and that the property remains adequately insured.

Question 15

A VA-guaranteed loan program provides assistance to:

Accepted Answer

The VA-guaranteed loan program is specifically designed to provide assistance to military veterans. This program helps eligible veterans and their families buy or refinance a home.

Question 16

A conventional mortgage usually involves:

Accepted Answer

A conventional mortgage typically involves equal payments over a fixed period of time. While there may be some variations in interest rates or payment caps, the primary characteristic of a conventional mortgage is the regular, predictable payments. Government guarantees and balloon payments are not typically associated with conventional mortgages.

Question 17

The purpose of an appraisal is to:

Accepted Answer

The purpose of an appraisal is to estimate the current market value of a home. This is useful for determining the fair price to sell or buy a home, as well as for determining the amount of a mortgage loan. It does not necessarily reduce property taxes or eliminate the need for home insurance. It also has no direct impact on fees paid to a real estate agent.

Question 18

A possible disadvantage of FHA and VA mortgages can be:

Accepted Answer

The answer of A possible disadvantage of FHA and VA...

Question 19

A short-term mortgage with a very large final payment is called a ____________ mortgage.

Accepted Answer

A balloon mortgage is characterized by small monthly payments with a large final payment, typically due at the end of a 5-to-7-year term. This type of mortgage is often used by borrowers who plan to sell or refinance the property before the final payment is due.

Question 20

Which document is used to transfer ownership of property from one party to another?

Accepted Answer

A deed is a legal document used to transfer ownership of property from one party to another.

Quiz 9: The Housing Decision: Factors and Finances