Mortgages MCQ Quiz - Multiple Choice Questions & Answers Page 2

11. In considering a three-year-one-year adjustable-rate mortgage (ARM), the interest rate will be fixed for how many years?

1. One year
2. Two years
3. Three years
4. Four years

12. 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

1. the borrower only
2. the lender only
3. both the borrower and lender
4. neither the borrower nor the lender

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

1. balloon payment
2. early payment
3. up-front payment
4. payment cap

14. 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?

1. Mature households with minimal financial constraints
2. First-time homebuyers
3. Homeowners who are refinancing to obtain a lower rate than is available on a comparable 30-year mortgage
4. Homeowners who are interested in selling their property within five years

15. 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

1. All finance charges in connection with the loan, such as discount points, origination fees, and underwriting fees.
2. All compensation to the originating brokers if one was used by the borrower.
3. Any prepayment of principal to be made on the loan.
4. Premiums for required forms of insurance.

16. 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)

1. floating rate
2. teaser rate
3. index rate
4. discount rate

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

1. level-payment mortgages
2. adjustable-rate mortgages
3. interest-only mortgages
4. early-payment mortgages

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

1. The yield on the loan will increase.
2. The yield on the loan will decrease.
3. The yield on the loan will be unaffected.
4. The yield on the loan automatically becomes zero.

19. While a variety of loan terms are available in a lenders mortgage menu, the most common loan term on a level-payment mortgage is

1. 7 years
2. 15 years
3. 30 years
4. 40 years

20. 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?

1. Three-year-one-year ARM
2. Five-year-one-year ARM
3. Seven-year-one-year ARM
4. Ten-year-one-year ARM