CH 6

The financing _________ is the value of assuming a loan when purchasing a property.

premium

The financing premium is the value of ________ a loan when purchasing a property. Multiple choice question. eliminating assuming paying off discounting

assuming

A buydown loan is used during periods of ____ interest rates to help borrowers qualify for financing. Multiple choice question. high low negative deflated

high

The price of a property with a purchase money mortgage will typically be ______, relative to a traditional mortgage, all else equal. Multiple choice question. the same higher zero lower

higher

Increasing a first mortgage or adding a second mortgage will both (increase/decrease) the loan-to-value ratio.

increase

For low loan-to-value ratios, the incremental borrowing cost: Multiple choice question. decreases increases is the same

is the same

A borrower would take a second mortgage if ______. Multiple choice question. it was a better economic outcome than getting a new first mortgage for the new balance it was a worse economic outcome than getting a new first mortgage for the new balance there was no first mortgage in place the first mortgage could get repaid

it was a better economic outcome than getting a new first mortgage for the new balance

Under what interest rate condition might a lender pay borrowers to repay a loan early? Multiple choice question. large increase large decrease small decrease small increase

large increase

If the incremental cost of borrowing an additional $20,000 is 18%, the alternative of a second mortgage must have a rate equal to what to be preferable? Multiple select question. 14 11 20 22

14 and 11

Given a choice between mortgage A ($125,000 at 3%) and mortgage B ($150,000 at 5%), the incremental cost of borrowing is the cost to borrow an additional: Multiple choice question. $125,000 $150.000 $100.000 $25,000

25000

With a biweekly mortgage, there are ______ periods per year. Multiple choice question. 52 104 24 26

26

if a wraparound mortgage is for $100,000, and the initial loan has a balance of $70,000, the borrower will receive _______ in cash. Multiple choice question.

30,000

Suppose there is a pre-payment penalty of 3% on 80,000 and an origination fee of $1,000 on a new loan. The cost to refinance is: Multiple choice question. 3,400 2,400 1,000 4,400

3400

A loan of $125,000 with 3 points has a loan origination fee of how much? Multiple choice question. $1,250 $0 $2,500 $3,750

3750

Generally, borrowers pay the same rate for any loan that has a loan-to-value ratio less than

60%

Mortgages with a loan origination fee will have a higher incremental ___________ of borrowing, all else equal.

COST

Another word for the marginal cost of borrowing is the ________ cost of borrowing. Multiple choice question. incremental inflated replacement substantial

INCREMENTAL

If your current mortgage of $55,000 has a rate of 4% and you have an investment opportunity with an expected return of 7%, should the borrower repay the loan early? Multiple choice question. No Yes

No

If your current mortgage of $55,000 has a rate of 4% and you have an investment opportunity with an expected return of 7%, should the borrower repay the loan early? Multiple choice question. Not enough information No Yes

No

If your current mortgage of $55,000 has a rate of 8% and you have an investment opportunity with an expected return of 5%, should the borrower repay the loan early? Multiple choice question. No Yes Not enough information

Yes

A purchase money mortgage typically has: Multiple choice question. market rates above-market rates below-market rates

below-market rates

When comparing alternative investments to making biweekly mortgage payments, you must find an effective rate that compounds: Multiple choice question. biweekly daily monthly annually

biweekly

Which party benefits with a longer amortization period? Multiple choice question. borrower lender borrower and lender neither

borrower

When interest rates go up, lenders would like ______. Multiple choice question. borrowers to not repay their loans borrowers to repay their loans borrowers to default borrowers to extend their loans at the same initial rate

borrowers to repay their loans

When interest rates go up, lenders would like ______. Multiple choice question. borrowers to repay their loans borrowers to not repay their loans borrowers to default borrowers to extend their loans at the same initial rate

borrowers to repay their loans

Which of the following loans allows the seller to pay the lender a fee to lower the interest rate? Multiple choice question. cash equivalency buydown loan wraparound loan seller financing

buydown loan

A buydown will make it ____ for a borrower to qualify for a loan. Multiple choice question. harder inverted the same easier

easier

The cost of making a new loan after taking fees and other costs into account is often called the ______. Multiple choice question. discounted cost of refinancing inflated cost of refinancing effective cost of refinancing adjusted cost of refinancing

effective cost of refinancing

A biweekly payment schedule means that a payment is made ______. Multiple choice question. 24 times a year twice a week every two weeks twice a month

every two weeka

True or false: The IRR from savings following refinancing is increasing at an increasing rate with the number of years held after refinancing. True false question.

false

The wraparound lender makes payments on the _____ loan. Multiple choice question. second and third third second first

first

The borrower benefits by having a ____________ amortization period.

longer

A second mortgage is preferred to a larger single mortgage if the rate of the second mortgage is (higher/lower) than the incremental cost.

lower

If below-market financing is not transferable, the premium a buyer would pay for a below-market-interest-rate loan will be: Multiple choice question. higher the same lower

lower

If interest rates are expected to fall, the premium a buyer would pay for a below-market-interest-rate loan will be: Multiple choice question. the same lower higher

lower

With a buydown loan, the seller pays to _____ the interest rate on the loan. Multiple choice question. raise lower equal inflate

lower

the _______ value of a loan is the amount that a new investor is willing to pay to receive the remaining payments.

market

The amount a new lender is willing to pay to purchase a mortgage is called: Multiple choice question. book value effective value market value

market value

Which of the following determine whether to refinance a mortgage? Multiple select question. new loan terms being considered the new mortgage originator prepayment penalties

new loans and prepayment penalities

A wraparound loan allows a borrower to _____________ while keeping an existing loan in place. Multiple choice question. obtain additional financing decrease the balance on the existing loan increase the balance on the existing loan pay down the current balance

obtain additional financing

The effective cost of refinancing includes which of the following? Multiple select question. previous monthly payments points new monthly payments prepayment penalty

points new monthly payments prepayment penalty

If interest rates rise over time, borrowers with a fixed rate mortgage will not: Multiple choice question. make payments default refinance

refinance

The incremental borrowing cost is the ______ that lenders require to lend additional funds. Multiple choice question. loan-to-value return cost

return

If a buyer does not have enough cash, an option may be a _________ mortgage.

second

Who provides financing with a purchase money mortgage? Multiple choice question. mortgage broker bank seller

seller

By making biweekly mortgage payments, what may occur? Multiple select question. the loan is repaid earlier total interest paid decreases total interest paid increases the loan is repaid later

the loan is repaid earlier total interest paid decreases

True or false: The buydown amount is likely added into the price of the property. True false question. True False

true

Below market loans have _________. Multiple choice question. value to the buyer value to the seller no value value to the buyer and seller

value to the buyer

With a wraparound loan, who makes payments on the original loan? Multiple choice question. the wraparound lender the seller the borrower the original lender

wraparound lender

Which of the following allows control over default on the first mortgage? Multiple choice question. wraparound loan secondary loan first loan the seller

wraparound loan