Question 1

Given the following information on a fixed-rate fully amortizing loan,determine the maximum amount that the lender will be willing to provide to the borrower.Loan Term: 30 years,Monthly Payment: $800,Interest Rate: 6%.

Accepted Answer

To determine the maximum loan amount the lender will provide, we use the formula for the present value of an annuity because a fixed-rate fully amortizing loan's payments can be considered as such. The formula is P = PMT × [(1 - (1 + r)^-n) / r], where P is the loan amount, PMT is the monthly payment, r is the monthly interest rate (annual rate divided by 12), and n is the total number of payments (months). Given a monthly payment of $800, an annual interest rate of 6% (or 0.06/12 = 0.005 monthly), and a loan term of 30 years (or 360 months), plugging these values into the formula gives a loan amount of approximately $133,433, which matches option D.

Question 2

Given the following information,calculate the balloon payment for a partially amortized mortgage.Loan amount: $84,000,Term to maturity: 7 years,Amortization Term: 30 years,Interest rate: 4.5%,Monthly Payment: $425.62.

Accepted Answer

C

Question 3

Required by the Truth-in-Lending Act,the annual percentage rate (APR)is reported by the lender to the borrower on virtually all U.S.home mortgage loans.The APR accounts for all of the following EXCEPT:

Accepted Answer

The APR accounts for all finance charges, compensation to brokers, and required insurance premiums, but it does not include prepayments of principal.

Question 4

Given the following information on an interest-only mortgage,calculate the monthly mortgage payment.Loan amount: $56,000,Term: 15 years,Interest Rate: 7.5%.

Accepted Answer

The answer of Given the following information on an interest-only...

Question 5

The monthly mortgage payment divided by the loan amount is commonly referred to as the:

Accepted Answer

The monthly mortgage payment divided by the loan amount is known as the monthly loan constant. It is the percentage of the mortgage payment that goes towards paying off the principal and interest each month. This can be useful in determining the affordability of a mortgage and also in comparing different loan options. Options A, B, and C are all incorrect as they do not refer to the monthly payment in relation to the loan amount.

Question 6

From the borrower's perspective,the effective borrowing cost is often viewed as the implied internal rate of return (IRR),since it takes into consideration costs that the borrower faces,but which are not passed on as income to the lender.Included in this calculation are certain closing costs,which may consist of all of the following EXCEPT:

Accepted Answer

Title insurance, mortgage insurance, and recording fees are all typical closing costs associated with a mortgage. Earnest money, however, is typically paid upfront by the borrower as a deposit to show their intention to follow through with the purchase of the property and is not considered a closing cost.

Question 7

For the purposes of estimating the effective borrowing cost (EBC),only those up-front expenses associated with obtaining the mortgage should be included,not the settlement costs associated with obtaining ownership of the property.With this in mind,which of the following costs should not be included in one's calculation of EBC?

Accepted Answer

Discount points, loan origination fees, and appraisal fees are all up-front expenses directly associated with obtaining the mortgage and should be included in the calculation of EBC. However, buyer's title insurance is a settlement cost associated with obtaining ownership of the property and should not be included in the calculation of EBC.

Question 8

Recently,15-year mortgages have increased in popularity amongst both borrowers and lenders.Which of the following groups of borrowers would typically be the least interested in
A 15-year mortgage?

Accepted Answer

The answer of Recently,15-year mortgages have increased in popularity amongst...

Question 9

The APR can be a controversial measure of borrowing cost because it tends to:

Accepted Answer

The answer of The APR can be a controversial measure...

Question 10

Given the following information on a 30-year fixed-payment fully-amortizing loan,determine the remaining balance that the borrower has at the end of seven years.Interest Rate: 7%,Monthly Payment: $1,200.

Accepted Answer

To determine the remaining balance after seven years, we first need to calculate the total number of payments made over seven years, which is 7 years x 12 months/year = 84 months.

Using the monthly payment of $1,200 and the interest rate of 7%, we can calculate the loan amount as follows:
Loan amount = Monthly payment / [(1 - (1 + r)^-n) / r]
where r is the monthly interest rate (7% / 12 = 0.005833) and n is the total number of payments (30 years x 12 months/year = 360 months).
Loan amount = $1,200 / [(1 - (1 + 0.005833)^-360) / 0.005833] = $194,673.39

To determine the remaining balance after seven years, we need to calculate the total amount of principal paid over seven years, which is the difference between the initial loan amount and the remaining balance after 84 months.
Remaining balance after 84 months = Loan amount x [(1 + r)^n - (1 + r)^m] / [(1 + r)^n - 1]
where m is the number of payments made (84 months) and n is the total number of payments (360 months).
Remaining balance after 84 months = $194,673.39 x [(1 + 0.005833)^360 - (1 + 0.005833)^84] / [(1 + 0.005833)^360 - 1] = $30,270.85

Total principal paid over 84 months = Loan amount - Remaining balance after 84 months = $194,673.39 - $30,270.85 = $164,402.54

Therefore, the correct answer is C) $164,402.

Question 11

One reason why adjustable-rate mortgages (ARMs)have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved.If interest rates were to rise on a level-payment mortgage (LPM)the interest rate risk of the loan would typically be borne by:

Accepted Answer

In a level-payment mortgage (LPM), the interest rate risk is typically borne by the lender. This is because the interest rate is fixed for the duration of the loan, meaning if market interest rates rise, the lender cannot adjust the rate of the loan to reflect this increase and thus misses out on potential higher returns.

Question 12

With the recent popularity of adjustable-rate mortgages (ARM),lenders have begun to offer ARMs with different adjustment periods.Which of the following ARM choices will most likely have the highest initial rate?

Accepted Answer

Generally, the longer the adjustment period, the higher the initial interest rate. Therefore, the Ten-year-one-year ARM will most likely have the highest initial rate as it offers the longest adjustment period.

Question 13

In considering a 3/1 adjustable-rate mortgage (ARM),the interest rate will be fixed for how many years?

Accepted Answer

In a 3/1 ARM, the interest rate is fixed for the first three years, and then it adjusts annually for the remaining duration of the mortgage. Therefore, the best choice is C, three years.

Question 14

To encourage borrowers to accept adjustable rate mortgages (ARMs)rather than level-payment mortgages,mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate.This rate is referred to as a(n):

Accepted Answer

A teaser rate is an initial low interest rate offered by mortgage lenders to encourage borrowers to choose an ARM instead of a fixed-rate mortgage. This rate is usually much lower than the prevailing market rate, making the monthly payments lower in the short term. However, this rate typically lasts for a limited time only, after which the interest rate and monthly payments adjust according to the terms of the loan agreement.

Question 15

Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate,but different mortgage terms,one being a 30-year mortgage and the other a 15-year mortgage.Under financially unconstrained circumstances,which of the following statements best describes the borrower's preference?

Accepted Answer

The answer of Assume that a borrower has a choice...

Question 16

Given the following information about a fully amortizing loan,calculate the lender's yield (rounded to the nearest tenth of a percent).Loan amount: $166,950,Term: 30 years,Interest rate: 8 %,Monthly Payment: $1,225.00,Discount points: 2.

Accepted Answer

The lender's yield is the total amount of interest earned over the life of the loan, including any discount points and fees charged.

To calculate the lender's yield, we first need to calculate the total amount of interest over the life of the loan:

Total interest = (Monthly payment x Number of payments) - Loan amount 
Total interest = ($1,225 x 360) - $166,950 = $335,550

Next, we need to adjust for the discount points:

Adjusted total interest = Total interest - (Discount points x Loan amount) 
Adjusted total interest = $335,550 - (2 x $166,950) = $1,432,550

Finally, we calculate the lender's yield using the formula:

Lender's yield = (Adjusted total interest / Loan amount) x 100 
Lender's yield = ($1,432,550 / $166,950) x 100 = 8.6%

Rounding to the nearest tenth of a percent gives us the answer of 8.2%, which is option C.

Question 17

When fully amortizing loans call for equal periodic payments over the life of the loan they are known as:

Accepted Answer

Level-payment mortgages are another way of saying fully amortizing loans where equal payments are made over the life of the loan. The other options listed do not fit this definition.

Question 18

Partially amortizing mortgage loans require periodic payments of principal,but are not paid off completely over the loan's term to maturity.Instead,the balance of the principal amount is paid at maturity in what is commonly referred to as a:

Accepted Answer

A partially amortizing mortgage loan requires the borrower to make periodic payments of principal, but the loan is not fully paid off by the end of the term. Instead, a balloon payment is required at maturity, which is the final payment of the remaining balance of the principal amount. This payment is larger than the previous periodic payments and is intended to fully pay off the outstanding principal.

Question 19

When lenders charge discount points (prepaid interest)on a loan,what impact does this have on the loan's yield?

Accepted Answer

When lenders charge discount points (which are a form of prepaid interest), the borrower pays more upfront, which increases the lender's yield on the loan. The yield is the return the lender receives on their investment (the loan). Therefore, charging discount points will increase the lender's yield on the loan.

Question 20

While a variety of loan terms are available in a lender's mortgage menu,the most common loan term on a level-payment mortgage is:

Accepted Answer

The most common loan term on a level-payment mortgage is 30 years. This allows for lower monthly payments spread out over a longer period of time. Many borrowers prefer this length of time because it is more manageable for their budget and provides them with more time to build equity in their homes.

Quiz 15: Mortgage Calculations and Decisions

Given the following information on a fixed-rate fully amortizing loan,determine the maximum amount that the lender will be willing to provide to the borrower.Loan Term: 30 years,Monthly Payment: $800,Interest Rate: 6%.

Given the following information,calculate the balloon payment for a partially amortized mortgage.Loan amount: $84,000,Term to maturity: 7 years,Amortization Term: 30 years,Interest rate: 4.5%,Monthly Payment: $425.62.

Required by the Truth-in-Lending Act,the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S.home mortgage loans.The APR accounts for all of the following EXCEPT:

Given the following information on an interest-only mortgage,calculate the monthly mortgage payment.Loan amount: $56,000,Term: 15 years,Interest Rate: 7.5%.

The monthly mortgage payment divided by the loan amount is commonly referred to as the:

Recently,15-year mortgages have increased in popularity amongst both borrowers and lenders.Which of the following groups of borrowers would typically be the least interested in A 15-year mortgage?

The APR can be a controversial measure of borrowing cost because it tends to:

Given the following information on a 30-year fixed-payment fully-amortizing loan,determine the remaining balance that the borrower has at the end of seven years.Interest Rate: 7%,Monthly Payment: $1,200.

With the recent popularity of adjustable-rate mortgages (ARM) ,lenders have begun to offer ARMs with different adjustment periods.Which of the following ARM choices will most likely have the highest initial rate?

In considering a 3/1 adjustable-rate mortgage (ARM) ,the interest rate will be fixed for how many years?

To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages,mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate.This rate is referred to as a(n) :

Given the following information about a fully amortizing loan,calculate the lender's yield (rounded to the nearest tenth of a percent) .Loan amount: $166,950,Term: 30 years,Interest rate: 8 %,Monthly Payment: $1,225.00,Discount points: 2.

When fully amortizing loans call for equal periodic payments over the life of the loan they are known as:

Partially amortizing mortgage loans require periodic payments of principal,but are not paid off completely over the loan's term to maturity.Instead,the balance of the principal amount is paid at maturity in what is commonly referred to as a:

When lenders charge discount points (prepaid interest) on a loan,what impact does this have on the loan's yield?

While a variety of loan terms are available in a lender's mortgage menu,the most common loan term on a level-payment mortgage is: