Deck 4: Fixed Interest Rate Mortgage Loans

Question 1

A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and monthly payments. If she wants to pay off the loan after 8 years, what would be the outstanding balance on the loan?

A) $84,886
B) $91,246
C) $146,667
D) $175,545
E) Not enough information

Answer 1

$175,545

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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 6

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

Question 7

A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5%. What would the monthly payment be?

A) $694
B) $1,042
C) $1,342
D) $1,355
E) Not enough information

Question 8

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

Question 9

A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% and monthly payments. What portion of the first month's payment would be applied to interest?

A) $694
B) $1,042
C) $1,342
D) $1,355
E) Not enough information

Question 10

A borrower obtains a $150,000 reverse mortgage with monthly payments over 10 years. If the interest rate of the mortgage loan is 8%, what is the monthly payment received by the borrower?

A) $820
B) $863
C) $1,250
D) $1,820

Question 11

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

Question 12

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 13

A borrower takes out a 30-year mortgage loan for $100,000 with an interest rate of 6% plus 4 points. What is the effective annual interest rate on the loan if the loan is carried for all 30 years?

A) 5.6%
B) 6.0%
C) 6.4%
D) 6.6%

Question 14

Origination fees are tax deductible as an interest expense.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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? Interest Amortization Payment

A) Decreasing Decreasing Decreasing
B) Increasing Decreasing Constant
C) Decreasing Increasing Constant
D) Constant Constant Constant

Question 22

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? Interest Amortization Payment

A) Decreasing Decreasing Decreasing
B) Constant Decreasing Decreasing
C) Decreasing Constant Decreasing
D) Constant Constant Constant

Question 23

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 24

Points are also known as:

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

Question 25

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

A) Is higher
B) Is lower
C) Is the same
D) Cannot be determined with this information

Question 26

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 27

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 28

APR stands for which of the following?

A) Annual percentage rate
B) Amortized percentage regulator
C) Accrued percentage rate
D) Annual percentage regulator

Question 29

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 30

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

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

Question 31

Demand for a mortgage loan is considered:

A) Stable demand
B) Derived demand
C) Interest rate demand
D) Nominal demand

Question 32

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 33

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