Question 1

Which one of the following set of mortgage terms will cause the borrower to pay the most interest, assuming the mortgage is paid according to the amortization schedule?

Accepted Answer

The longer the term of the mortgage, the more interest the borrower will pay over the life of the loan. Additionally, the higher the interest rate, the more interest the borrower will pay. Therefore, the 30-year, 7.0 percent mortgage will cause the borrower to pay the most interest.

Question 2

Which one of the following statements correctly relates to reverse mortgages?

Accepted Answer

Reverse mortgages allow homeowners to access equity in their property without making monthly payments of principal and interest. Instead, the loan balance and interest accrue over time and are typically repaid when the borrower sells the home or passes away. There is no age requirement for borrowers, although they must meet certain eligibility criteria such as having sufficient home equity and completing counseling sessions. The total costs associated with reverse mortgages can be relatively high.

Question 3

When can a homeowner prepay on his or her home mortgage?

Accepted Answer

Homeowners can typically prepay on their home mortgage at any time without penalty. However, it's always best to check with your lender beforehand to make sure there are no prepayment penalties or fees in your specific loan agreement.

Question 4

You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. How much will the principal balance be after the 90^th payment has been paid?

Accepted Answer

The answer of You have a 15-year, fixed-rate, $150,000 mortgage....

Question 5

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

Accepted Answer

The longer the loan term, the lower the monthly payment will be. Therefore, the 30-year term will provide the lowest monthly payment compared to the 10-year and 15-year terms. Additionally, the interest rate for the 30-year term is the same as the other options, which makes it the best choice for a lower monthly payment.

Question 6

Which one of the following correctly applies to a mortgage passthrough bond?

Accepted Answer

A mortgage passthrough bond is a type of bond that is backed by a pool of underlying mortgages. The primary collateral for the bond is the underlying pool of mortgages, hence, option A is the correct choice. Option B is incorrect because both interest and principal payments are passed through to investors in a mortgage passthrough bond. Option C is incorrect because each mortgage passthrough bond represents a fraction of the underlying pool of mortgages, not a single mortgage. Option D is incorrect because mortgage collaring is not a process involved in the creation of mortgage passthrough bonds. Option E is incorrect because mortgage passthrough bonds are not guaranteed by the full faith and credit of the U.S. government.

Question 7

You own a mortgage passthrough. Which one of the following statements correctly describes the payments you will receive on that security?

Accepted Answer

A mortgage passthrough security receives payments from a pool of underlying mortgages. The payments on the passthrough security will vary depending upon the amount paid on the underlying mortgages each period. As the mortgages are paid off over time, the payments received by the passthrough security holder will decrease. Therefore, choice D is the correct one.

Question 8

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

Accepted Answer

The range defined by the upper and lower prepayment schedules of a PAC (Planned Amortization Class) bond is known as the PAC collar. This collar helps to protect the bond from prepayment risk by setting predefined boundaries for how quickly the principal can be repaid.

Question 9

Which one of the following is a security that only pays the principal cash flows to investors?

Accepted Answer

A principal-only strip is a security that only pays the principal cash flows to investors. The other options, such as interest-only and amortized strips, involve payments of interest in addition to the principal.

Question 10

Which one of the following is NOT a reason why mortgage prepayments occur?

Accepted Answer

An increase in interest rates typically discourages mortgage prepayments because homeowners are less likely to refinance to a higher rate, and it does not directly prompt the sale of a home or a refinancing decision for more favorable terms.

Question 11

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will _____ and the amount of principal you pay each month will ____.

Accepted Answer

In the early years of a 30-year fixed-rate mortgage, the amount of interest you pay each month will be higher than the amount of principal you pay. This is because, at the beginning of the loan, you owe more in principal, and interest is calculated on the remaining balance. As you pay down the principal over time, the amount of interest you pay each month will decrease, and the amount of principal you pay each month will increase. Therefore, the correct answer is B - the amount of interest you pay each month will decrease, and the amount of principal you pay each month will increase.

Question 12

A mortgage prepayment is similar to which one of the following features of a corporate bond?

Accepted Answer

A mortgage prepayment is similar to a call provision in a corporate bond, as both allow the borrower or issuer to repay the debt before the scheduled maturity date. This is advantageous for the borrower or issuer if interest rates have decreased, as they can refinance the debt at a lower rate. Similarly, a call provision allows the issuer to redeem the bond before maturity if interest rates have decreased, which saves them money on interest payments.

Question 13

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage?
I. current mortgage balance on the home
II. age of homeowner
III. location of the home
IV. appraised value of the home

Accepted Answer

All four factors listed affect the amount of funds available from a reverse mortgage. The current mortgage balance can reduce the available equity, the homeowner's age can influence the loan amount (older homeowners may receive more funds), the location can affect the home's value and thus the loan amount, and the appraised value directly impacts the equity available for a reverse mortgage.

Question 14

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

Accepted Answer

The answer of Which one of the following is defined...

Question 15

Mortgage prepayments are generally a(n) ______ to the mortgage borrower and a(n) ____ to the mortgage investor.

Accepted Answer

Mortgage prepayments are an advantage to the borrower because they can potentially save money on interest payments and pay off the mortgage earlier. However, it is a disadvantage to the investor because they lose out on potential interest income that they would have received if the borrower had made all their scheduled payments.

Question 16

Borrowers must pay which one of the following if they are to pay off their home mortgage?

Accepted Answer

Borrowers must pay off the remaining principal balance along with any accrued interest to completely pay off their home mortgage. Option B calculates the present value of all future payments which doesn't necessarily equate to paying off the mortgage. Option C states "all remaining payments" but doesn't specify the amount required to pay off the entire loan. Option D adds an additional year of interest which is not required to pay off the loan. Option E calculates the present value of only the remaining principal balance, which also doesn't include any accrued interest.

Question 17

Which one of the following is most apt to create an environment that increases mortgage prepayments?

Accepted Answer

When home mortgage rates decline significantly, homeowners may be more likely to refinance their mortgages or make higher prepayments to take advantage of the lower rates.

Question 18

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

Accepted Answer

The answer of What are the securities that are created...

Question 19

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Accepted Answer

The answer of A mortgage-backed security that has only a...

Question 20

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

Accepted Answer

The answer of Which one of the following is a...

Quiz 20: Mortgage-Backed Securities

Which one of the following set of mortgage terms will cause the borrower to pay the most interest, assuming the mortgage is paid according to the amortization schedule?

Which one of the following statements correctly relates to reverse mortgages?

When can a homeowner prepay on his or her home mortgage?

You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. How much will the principal balance be after the 90^th payment has been paid?

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

Which one of the following correctly applies to a mortgage passthrough bond?

You own a mortgage passthrough. Which one of the following statements correctly describes the payments you will receive on that security?

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

Which one of the following is a security that only pays the principal cash flows to investors?

Which one of the following is NOT a reason why mortgage prepayments occur?

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will _ and the amount of principal you pay each month will .

A mortgage prepayment is similar to which one of the following features of a corporate bond?

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage? I. current mortgage balance on the home II. age of homeowner III. location of the home IV. appraised value of the home

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

Mortgage prepayments are generally a(n) __ to the mortgage borrower and a(n) to the mortgage investor.

Borrowers must pay which one of the following if they are to pay off their home mortgage?

Which one of the following is most apt to create an environment that increases mortgage prepayments?

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

Quiz 20: Mortgage-Backed Securities

Which one of the following set of mortgage terms will cause the borrower to pay the most interest, assuming the mortgage is paid according to the amortization schedule?

Which one of the following statements correctly relates to reverse mortgages?

When can a homeowner prepay on his or her home mortgage?

You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. How much will the principal balance be after the 90th payment has been paid?

Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.)

Which one of the following correctly applies to a mortgage passthrough bond?

You own a mortgage passthrough. Which one of the following statements correctly describes the payments you will receive on that security?

Which one of the following is the range defined by the upper and lower prepayment schedules of a PAC bond?

Which one of the following is a security that only pays the principal cash flows to investors?

Which one of the following is NOT a reason why mortgage prepayments occur?

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will _____ and the amount of principal you pay each month will ____.

A mortgage prepayment is similar to which one of the following features of a corporate bond?

Which of the following affect the amount of funds available to a homeowner from a reverse mortgage? I. current mortgage balance on the home II. age of homeowner III. location of the home IV. appraised value of the home

Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern?

Mortgage prepayments are generally a(n) ______ to the mortgage borrower and a(n) ____ to the mortgage investor.

Borrowers must pay which one of the following if they are to pay off their home mortgage?

Which one of the following is most apt to create an environment that increases mortgage prepayments?

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments?

You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. How much will the principal balance be after the 90^th payment has been paid?

You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will _ and the amount of principal you pay each month will .

Mortgage prepayments are generally a(n) __ to the mortgage borrower and a(n) to the mortgage investor.