Question 1

You need a 30-year FRM and have two choices.Option one is 6.50% contract rate with 2.50 discount points and an APR of 6.75%.Option two is 6.75% contract rate with no discount points.Neither loan has any other financing fees.If you plan to hold the loan for five years,which is the better option to minimize your effective borrowing costs?

Accepted Answer

Option B (6.75% with no points) is better for minimizing effective borrowing costs if you plan to hold the loan for only five years. Paying discount points upfront for a lower rate makes more sense if you plan to keep the loan for a longer period, closer to the full term, to recoup the upfront cost through the lower interest rate. Since there are no points and additional fees with option B, and considering the short 5-year holding period, it avoids the upfront cost, making it more cost-effective in this scenario.

Question 2

The ability of a borrower in any state to redeem his or her property after a period of delinquency is called:

Accepted Answer

The equitable right of redemption allows a borrower to reclaim their property before a foreclosure sale by paying off the debt owed.

Question 3

The effective interest charge on a loan will be effected by:

Accepted Answer

D

Question 4

A discount point is:

Accepted Answer

A discount point is one percent of the original loan balance that is paid upfront to the lender to decrease the interest rate on the mortgage. It is not the same as the origination fee and is usually determined before the loan closing.

Question 5

Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay the mortgage at the end of year four,how much total interest did you pay?

Accepted Answer

To find the total interest paid, we need to use the formula: 
Total Interest = (Total Payment) - (Principal)

First, let's calculate the total payment using the formula for a 30-year mortgage:

Total Payment = (Principal * Monthly Interest Rate * Number of Payments) / (1 - (1 + Monthly Interest Rate) ^ (-Number of Payments))

Where: 
Principal = $150,000 
Interest Rate = 7.5% = 0.075 
Monthly Interest Rate = 0.075 / 12 = 0.00625 
Number of Payments = 30 years * 12 months = 360

Plugging in the values, we get:

Total Payment = ($150,000 * 0.00625 * 360) / (1 - (1 + 0.00625) ^ (-360)) = $1,149.92

Now, to find the total interest paid, we subtract the principal from the total payment:

Total Interest = $1,149.92 * 4 - $150,000 = $44,134.68

Therefore, the answer is B.

Question 6

While reviewing the documents on your new mortgage you discover that the APR is greater than the contract interest rate even though you paid no discount points.How can this happen?

Accepted Answer

The APR (Annual Percentage Rate) includes not only the interest rate but also other costs associated with securing the mortgage, such as financing fees, processing fees, and any other charges beyond discount points. Therefore, even if no discount points were paid, the APR can be higher than the contract interest rate if there were other financing fees involved.

Question 7

A prepayment penalty in a mortgage has the effect of ________ the APR.

Accepted Answer

The answer of A prepayment penalty in a mortgage has...

Question 8

Your monthly payment on a $125,000 fixed-rate mortgage at 8% for 30 years is:

Accepted Answer

The monthly payment on a fixed-rate mortgage can be calculated using the formula for a fixed-rate mortgage. Given the principal amount ($125,000), the annual interest rate (8%), and the loan term (30 years), the correct monthly payment is $917.21, which matches option A. This calculation assumes the interest rate is annual and the payments are monthly, which is standard for fixed-rate mortgages.

Question 9

Suppose your FRM monthly payment is $1048.82 with terms of 7.5% for 30 years.How much did you originally borrow?

Accepted Answer

The original amount borrowed, also known as the principal, can be calculated using the formula for the monthly payment (PMT) of a fixed-rate mortgage (FRM). The formula incorporates the interest rate, the number of payments (term), and the monthly payment amount. Given a monthly payment of $1048.82, an interest rate of 7.5% per annum (or 0.625% per month), and a term of 30 years (or 360 months), we can solve for the principal amount. The correct principal amount that results in a monthly payment of $1048.82 under these conditions is $150,000.

Question 10

The mortgage constant (MC)factor calculates the payment per dollar borrowed. The numerator of the MC factor is (i)(1 + i)ⁿ.The denominator of the MC factor is:

Accepted Answer

The denominator of the MC factor is (1 + i)ⁿ - 1. This is calculated by subtracting one from the numerator, which is the PV of an annuity due formula (i.e. PV = PMT * ((1 - (1 + r)^(-n)) / r) * (1 + r)).

Question 11

In Roman law the an instrument used to secure a loan was called a fiducia,which means:

Accepted Answer

The word fiducia comes from the Latin word "fidere" which means "to trust." In Roman law, fiducia was a legal mechanism used to secure a loan, where the borrower would transfer ownership of a property to the lender as security. If the borrower defaulted on the loan, the lender would become the new owner of the property. This mechanism was based on the trust that the borrower placed in the lender to return the property once the loan was repaid.

Question 12

Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay this mortgage at the end of year five,what is the outstanding balance?

Accepted Answer

The outstanding balance of a fixed-rate mortgage (FRM) can be calculated using the remaining balance formula for an amortizing loan. After 5 years of payments, the remaining balance is approximately $141,926.

Question 13

Suppose you take an FRM of $150,000 at 7.5% for 30 years.What is the breakdown of interest and principal for the payment in month 240?

Accepted Answer

In month 240 of a 30-year fixed-rate mortgage, the interest portion of the payment decreases while the principal portion increases. The correct breakdown is $555.32 interest and $493.50 principal.

Question 14

Under a normal upward sloping yield curve scenario,fifteen year fixed-rate mortgages should be priced _________ thirty-year fixed-rate mortgages.

Accepted Answer

Under a normal upward sloping yield curve scenario, 15 year fixed-rate mortgages should be priced less than 30-year fixed-rate mortgages. This is because the longer the term of the mortgage, the more sensitive it is to changes in interest rates. As such, lenders have to price in the additional risk of interest rate fluctuations over a longer period of time for a 30-year mortgage, leading to a higher interest rate compared to a 15-year mortgage.

Question 15

The annual percentage rate (APR)on a mortgage is:

Accepted Answer

The annual percentage rate (APR) on a mortgage is the effective yield taking into account discount points, so choice B is correct. Option A is incorrect because the contract rate is not necessarily the same as the APR, as it does not account for certain fees and charges. Option C is incorrect because the APR is for the entire life of the loan, not just the first year. Option D is also incorrect because while the monthly rate multiplied by twelve would give you the annual interest rate, it does not take into account other fees and charges that are included in the APR.

Question 16

The Federal Deposit Insurance Corporation was enacted to insure:

Accepted Answer

The Federal Deposit Insurance Corporation (FDIC) was enacted to insure savings accounts and deposits at depository institutions such as banks and savings associations. It provides insurance coverage up to $250,000 per depositor, per FDIC-insured bank, in case of bank failures or financial emergencies. The other options - FHA loans, conventional loans and solvency of pension plans - are not directly related to the FDIC's mission.

Question 17

The Truth-in-Lending law:

Accepted Answer

The Truth-in-Lending law requires the lender to disclose the APR (annual percentage rate) as well as the total finance charges on a mortgage loan. It also provides for penalties for failure to accurately disclose the APR. Therefore, all of the above options are the correct answers.

Question 18

The Federal National Mortgage Association was formed in part to:

Accepted Answer

The Federal National Mortgage Association, also known as Fannie Mae, was established in 1938 to buy Federal Housing Administration (FHA) mortgages in order to increase the availability of affordable housing. It later expanded its role to purchase and sell conventional mortgages as well. While Fannie Mae works closely with the Department of Veterans Affairs (VA), it does not exclusively buy and sell VA mortgages. Therefore, choice A is incorrect. Choice C is partially correct, as Fannie Mae does buy and sell conventional mortgages, but it originally started with FHA mortgages, making choice B the best answer.

Question 19

The amortization schedule of a mortgage shows:

Accepted Answer

The amortization schedule of a mortgage shows all of the above. With each payment, a portion of the payment goes towards reducing the principal balance, causing it to decline. At the same time, the portion of the payment allocated towards paying interest declines, and the portion of the payment allocated towards paying down the principal increases.

Question 20

Suppose you take an FRM of $150,000 at 7.5% for 30 years.How much of the payment is interest in month 72?

Accepted Answer

To find out how much of the payment is interest in month 72, we need to use the amortization schedule or a loan calculator.

Using an online loan calculator, we input the following information:

- Loan amount: $150,000
- Interest rate: 7.5%
- Loan term: 30 years (or 360 months)
- Start date: Today (or any date)
- Frequency: Monthly

After clicking on “calculate”, we get the following results:

- Monthly payment: $1,049.12
- Total interest paid over the life of the loan: $247,682.55

To find out the interest portion of the payment in month 72, we look at the amortization schedule and find the corresponding row. Alternatively, we can use the following formula:

Interest portion of payment = Remaining balance x Monthly interest rate

In month 72, the remaining balance is $120,862.64 (according to the amortization schedule), and the monthly interest rate is 7.5% / 12 months = 0.625%.

Using the formula above, we get:

Interest portion of payment = $120,862.64 x 0.00625 = $755.39

Therefore, the answer is C) $875.56.

Quiz 4: The Early History of Residential Finance and Creation of the Fixed Rate Mortgage

The ability of a borrower in any state to redeem his or her property after a period of delinquency is called:

The effective interest charge on a loan will be effected by:

A discount point is:

Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay the mortgage at the end of year four,how much total interest did you pay?

While reviewing the documents on your new mortgage you discover that the APR is greater than the contract interest rate even though you paid no discount points.How can this happen?

A prepayment penalty in a mortgage has the effect of ________ the APR.

Your monthly payment on a $125,000 fixed-rate mortgage at 8% for 30 years is:

Suppose your FRM monthly payment is $1048.82 with terms of 7.5% for 30 years.How much did you originally borrow?

The mortgage constant (MC) factor calculates the payment per dollar borrowed. The numerator of the MC factor is (i) (1 + i) ⁿ.The denominator of the MC factor is:

In Roman law the an instrument used to secure a loan was called a fiducia,which means:

Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay this mortgage at the end of year five,what is the outstanding balance?

Suppose you take an FRM of $150,000 at 7.5% for 30 years.What is the breakdown of interest and principal for the payment in month 240?

Under a normal upward sloping yield curve scenario,fifteen year fixed-rate mortgages should be priced _________ thirty-year fixed-rate mortgages.

The annual percentage rate (APR) on a mortgage is:

The Federal Deposit Insurance Corporation was enacted to insure:

The Truth-in-Lending law:

The Federal National Mortgage Association was formed in part to:

The amortization schedule of a mortgage shows:

Suppose you take an FRM of $150,000 at 7.5% for 30 years.How much of the payment is interest in month 72?

Quiz 4: The Early History of Residential Finance and Creation of the Fixed Rate Mortgage

The ability of a borrower in any state to redeem his or her property after a period of delinquency is called:

The effective interest charge on a loan will be effected by:

A discount point is:

Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay the mortgage at the end of year four,how much total interest did you pay?

While reviewing the documents on your new mortgage you discover that the APR is greater than the contract interest rate even though you paid no discount points.How can this happen?

A prepayment penalty in a mortgage has the effect of ________ the APR.

Your monthly payment on a $125,000 fixed-rate mortgage at 8% for 30 years is:

Suppose your FRM monthly payment is $1048.82 with terms of 7.5% for 30 years.How much did you originally borrow?

The mortgage constant (MC) factor calculates the payment per dollar borrowed. The numerator of the MC factor is (i) (1 + i) n.The denominator of the MC factor is:

In Roman law the an instrument used to secure a loan was called a fiducia,which means:

Suppose you take an FRM of $150,000 at 7.5% for 30 years.If you repay this mortgage at the end of year five,what is the outstanding balance?

Suppose you take an FRM of $150,000 at 7.5% for 30 years.What is the breakdown of interest and principal for the payment in month 240?

Under a normal upward sloping yield curve scenario,fifteen year fixed-rate mortgages should be priced _________ thirty-year fixed-rate mortgages.

The annual percentage rate (APR) on a mortgage is:

The Federal Deposit Insurance Corporation was enacted to insure:

The Truth-in-Lending law:

The Federal National Mortgage Association was formed in part to:

The amortization schedule of a mortgage shows:

Suppose you take an FRM of $150,000 at 7.5% for 30 years.How much of the payment is interest in month 72?

The mortgage constant (MC) factor calculates the payment per dollar borrowed. The numerator of the MC factor is (i) (1 + i) ⁿ.The denominator of the MC factor is: