FP -> Exam 2 Prep

Prequalification provides a homebuyer with the specific mortgage amount that he or she is eligible for (subject to the expected changes in interest rates) True False

True

The market price of a house is $125,000, and the home buyer borrows $100,000 Two points are equal to $2,000 True False

True

Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan, what is the maximum amount Henry can spend on the car? $12,765 $14,400 $14,079 $15,265

$15,265

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7 percent, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round off the answer to nearest units place.) $12,528 $14,400 $16,028 $17,028 $18,028

$17,028

If you lender charges 1.5 points on a house selling for $100,000, on which there is a $90,000 loan, the points will cost you a. $1,350 b. $1,500 c. $2,850 d. $150 e. $900

a. $1,350

If Liza's debt safety ratio is 15% and her monthly take-home pay is $4,500, which of the following equals her total monthly payments? a. $675 b. $1,200 c. $500 d. $450 e. $890

a. $675 .15*4,500=675

The most common use of consumer loans is to finance a. a new car b. college education c. a vacation d. a house e. furniture

a. a new car

___ are the credit cards issued in conjunction with a sponsoring group - most commonly some type of charitable, political, or professional organization a. affinity cards b. retail charge cards c. collateralized credit cards d. reward credit cards e. secured credit cards

a. affinity cards

The FICO credit scoring system assigns points according to a. amounts owed b. marital status c. employment history d. salary e. where you live

a. amounts owed

A ___ is a type of reporting agency that collects and sells credit information about individual borrowers a. credit bureau b. consumer bureau c. insurance company d. bank e. credit scoring house

a. credit bureau

Which of the following statements regarding fixed-rate loans is true? a. fixed-rate loans are preferable if interest rates are expected to rise b. the cost of fixed-rate loans increases with an increase in the market interest rate c. the cost of fixed-rate loans decreases with a decrease in the market interest rate d. fixed-rate loans are preferable if interest rates are expected to fall e. fixed-rate loans have periodic adjustment dates, at which time the interest rate and monthly payment are adjusted as necessary

a. fixed-rate loans are preferable if interest rates are expected to rise

___ is a situation where homeowners owe more on their mortgage than what their homes are worth a. negative equity b. a foreclosure c. a restructure d. inflation e. an expanded mortgage

a. negative equity

To establish credit, you should first a. open checking and savings accounts b. use credit extensively c. obtain a small loan d. pay cash for all purchases e. obtain a large loan from close relatives

a. open checking and savings accounts

The personal property floater (PPF): a. provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy b. is available to meet the needs of 'innocent' victims of accidents who are negligently injured by uninsured, underinsured, or hit-and-run motorists c. is a specialized inland marine policy covering boats and trailers used with boats d. covers against liability caused by the ownership or use of items of personal property e. is an additional amount of insurance equal to a specified percentage of the replacement value of the property

a. provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy

Borrowing from ___ is not advisable a. relatives b. consumer finance companies c. asset management d. credit unions e. commercial banks

a. relatives

With a bank credit card, you can often avoid interest charges if: a. the account balance is paid in full every month b. at least half the account balance is paid every month c. the minimum payment is made every month d. the account is a revolving credit account e. the account balance is below the credit limit

a. the account balance is paid in full every month

Replacement-cost coverage is the reimbursement of: a. the cost of repairing or replacing damaged structures without deducting for depreciation b. reasonable living expenses while the insured's house is being repaired c. the cost of damages caused by perils other than those mentioned in the policy d. the cost of defending the insured e. the increase in the deductible to reduce the amount of the insurance premium

a. the cost of repairing or replacing damaged structures without deducting for depreciation

A loan rollover means that a. the loan is paid off by taking out another loan b. the loan is repaid without any defaults in payments c. the interest on the new loan is lower than the previous loan d. the maturity period of the new loan is longer than the maturity period of the original loan e. the new loan will not have any processing fees

a. the loan is paid off by taking out another loan

Which of the following statements regarding loan maturity is true? a. the longer the loan maturity, the higher the amount of interest paid b. the shorter the loan maturity, the higher the total cost of borrowing c. the longer the loan maturity, the higher the monthly payments d. the shorter the loan maturity the loan maturity, the lower the monthly payments e. the longer the loan maturity, the lower the total cost of borrowing

a. the longer the loan maturity, the higher the amount of interest paid

Justin and Angela have a home valued at $96,000 with an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% of the market value of the home, how much can they borrow using a home equity loan? a. $0 b. $12,000 c. $27,000 d. $28,000 e. $36,000

b. $12,000 96,000*.75-60,000=12,000

The purchase price of the house you are buying is $140,000. A LTV ratio of 80% will require a down payment of a. $34,000 b. $28,000 c. $108,000 d. $112,000 e. $20,000

b. $28,000

A higher insurance cost may result from a. a low crime rate in the area of the insured's residence b. a low credit score of the insured c. fewer insurance claims from the area of the insured residence d. the lack of a swimming pool at the insured's residence e. fewer captive agents hired by the insurance company

b. a low credit score of the insured

___ are the expenses that borrowers pay during the final step of a real estate purchase a. amortization costs b. closing costs c. property taxes d. insurance costs e. mortgage interest expenses

b. closing costs

Mason Corporation borrows funds for the expansion of its business. The loan is secured with the office building. Therefore, the office building serves as _____ for the loan. a. liability b. collateral c. debt d. insurance e. corporate deposit

b. collateral

Which of the following statements regarding loan collateral is true? a. loans secured by collateral always have higher finance charges than unsecured loans b. collateral is an item of value used to secure the principle portion of a loan c. collateral is always required by banks to lend to customers with good credit ratings d. collateral is an item of value used to secure the interest portion of a loan e. loans are secured by collateral that is readily marketable at a price high enough tocover the interest portion of the loan

b. collateral is an item of value used to secure the principle portion of a loan

Comprehensive automobile coverage refers to: a. complete coverage including liability, medical payments, and damage to the automobile b. coverage for damage to an insured automobile from perils (with a few exceptions) other than collision c. coverage that adds items of personal property, such as CB radios and telephones, that are ordinarily excluded d. coverage for bodily injuries suffered in an automobile accident e. coverage for damage due to a multi-car collision

b. coverage for damage to an insured automobile from perils (with a few exceptions) other than collision

Which of the following sources of consumer loans often has the most favorable terms for borrowers? a. commercial banks b. credit unions c. consumer finance companies d. savings and loan associations e. asset management companies

b. credit unions

a payment made using a ___ is equivalent to paying by cash a. retail credit card b. debit card c. affinity card d. reward card e. student credit card

b. debit card

Standard homeowner's policies will not include coverage for damage done by a. fire b. flood c. lightning d. wind e. glass breakage

b. flood

For much of the life of a fixed-rate mortgage loan, the majority of each monthly payment goes to pay the a. principle b. interest c. property taxes d. homeowner's insurance e. private mortgage insurance

b. interest

A ___ ratio specifies the maximum percentage of the value of a property that a lender is willing to loan a. affordability to be expense b. loan to value c. rent to mortgage d. mortgage points to closing costs e. points to mortgage

b. loan to value

Credit unions lend money to qualified people who are their: a. employees b. members c. suppliers d. policyholders e. stockholders

b. members

The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan, leading to an increase in the principle balance. This is an example of a. a growing equity b. negative amortization c. a fixed interest expense d. shrinking principle e. an indexed equity

b. negative amortization

Which of the following components carries the most weight in deriving a FICO score? a. length of credit history b. payment history c. different types of credit uses d. amounts owed e. new credit

b. payment history

A personal liability umbrella policy: a. may include subsidies for flood insurance established in cooperation with a private insurance agent. b. provides added liability coverage for homeowner's and automobile insurance. c. provides the maximum protection available for virtually all the insured's personal property. d. typically includes the basic health and homeowner's protection needed by most families. e. is recommended for persons with low to moderate levels of income and net worth.

b. provides added liability coverage for homeowner's and automobile insurance.

A foreclosure happens when: a. the rates of interest prevalent in the housing market are extremely volatile, forcing the lender to demand additional collateral from the borrower. b. the lenders attempt to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged as collateral. c. the borrowers repay their housing loan well before the estimated closing period of the loan. d. the value of a house is higher than the loan taken on the property. e. the borrower is planning to restructure the loan taken for making mortgage payments.

b. the lenders attempt to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged as collateral.

Retail charge cards are advantageous to merchants because: a. they help merchants get loans b. they help build consumer loyalty c. they help the merchants file for bankruptcy d. they help the merchants save taxes e. they help the merchants give loans to their suppliers

b. they help build consumer loyalty

Jenny's monthly take-home pay is $5,000 and her total monthly payments are $1,000. Which of the following is Jenny's debt safety ratio? a. 10% b. 5% c. 20% d. 35% e. 40%

c. 20% 1,000/5,000=0.2 or 20%

Donna, who is single and 30 years old, received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2017 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance? a. Maintaining her liability limits at current levels b. Raising her medical payments coverage c. Raising her deductible from $250 to $1,000 d. Maintaining her collision coverage at current levels e. Raising her collision coverage by $10,000

c. Raising her deductible from $250 to $1,000

When the simple interest method is used to determine finance charges, the interest is calculated based on the a. future value of the installments b. average outstanding balance of the loan c. actual balance of the loan d. present value of all finance charges e. future value of all finance charges

c. actual balance of the loan

Which of the following statements about the cash advances that the holder of a bank credit card can obtain from participating banks is true? a. cash advances are loans on which interest begins to accrue only when the borrower uses them to make purchases b. cash advances without any limits can be withdrawn from an automated teller machine (ATM) using credit cards c. cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account d. cash advances can be obtained only during the hours the bank is open e. cash advances are loans obtained from an automated teller machine (ATM) using credit cards that do not allow merchandise purchases

c. cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account

Which of the following is the best way to build a strong credit history a. use a debit card on a regular basis b. regularly use credit cards to buy on impulse c. consistently make payments on time d. use one form of credit to make payments on other debt e. obtain a loan and pay it off in as few payments as possible

c. consistently make payments on time

Which of the following is a non depository institution? a. commercial bank b. credit union c. consumer finance company d. savings and loan association (S&L) e. savings bank

c. consumer finance company

An increase in the amount of the deductible will a. increase the insurance coverage b. decrease the replacement cost of the insured property c. decrease the amount of insurance premiums d. increase the personal property floater (PPF) coverage for the insured property e. decrease the value of the property

c. decrease the amount of insurance premiums

A ___ loan is repaid in a series of fixed, scheduled payments rather than in a lump sum a. interim b. single payment c. installment d. standard e. consolidated

c. installment

On an adjustable-rate mortgage, the percentage points that a lender adds to the index rate to determine the rate of interest is called the a. payment cap b. interest rate cap c. margin d. anchor e. residual value

c. margin

Which of the following statements regarding medical payments coverage in a personal automobile policy (PAP) is true? a. medical payments coverage insures a covered individual for medical expenses incurred within 5 years of an automobile accident in an amount not to exceed b. a person must be occupying an automobile when the accidental injury occurs to be eligible for benefits c. medical payments coverage provides for reimbursement even if other sources of recovery, such as health insurance or accident insurance, also makes payments d. in all states, medical payments are subject to subrogination, which means the insurer is entitled to recover any duplicate payments made to the insured e. injuries sustained on a bicycle or motorcycle in a traffic accident are covered

c. medical payments coverage provides for reimbursement even if other sources of recovery, such as health insurance or accident insurance, also makes payments

Most loans made by savings and loan associations (S&Ls) are a. home improvement loans b. auto loans c. mortgage loans d. education loans e. consolidation loans

c. mortgage loans

Any credit card purchase will effectively be an interest-free loan if you have a zero balance when the grace period begins and you: a. pay for the purchase within 6 months b. make the minimum payment c. pay off the entire balance on or before the due date d. pay a $5 fee or 3% of the amount charged e. receive a cash advance

c. pay off the entire balance on or before the due date

If you make a down payment of $11,000 on a house worth $110,000, the lenders will require ___ because of the size of the down payment a. closing points b. a bond c. private mortgage insurance (PMI) d. application fees e. homeowner's insurance

c. private mortgage insurance (PMI)

An escrow account is used to collect _____ from one's monthly mortgage payment. a. interest b. principle c. property taxes d. closing costs e. operating expenses

c. property taxes

The seller of a house typically pays the a. appraisal fee b. loan application fee c. real estate agent's commission d. title search and insurance e. mortgage points

c. real estate agent's commission

Which of the following does a lender look at before granting credit to an applicant? a. the applicant's political interests b. the applicant's circle of friends c. the applicant's age d. the applicant's religious affiliations e. the applicant's career goals

c. the applicant's age

The rate of interest charged on ___ loans changes periodically in keeping with prevailing market conditions a. nominal rate b. standard rate c. variable rate d. fixed rate e. low rate

c. variable rate

If the maximum loan-to-value ratio that a lender will accept on a $100,000 loan is 80 percent, then the borrower must make a down payment of at least a. $100,000 b. $80,000 c. $180,000 d. $20,000 e. $120,000

d. $20,000

Barb and Bob want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires total installment loan payments not exceed 35% of gross monthly income. Based on Barb and Bob's financial data below, what is the maximum monthly mortgage payment for which they can qualify? Monthly Gross Income $4,000 Car Payment $350 Student loan payment $200 a. $1,400 b. $1,208 c. $1,502 d. $850 e. $500

d. $850 4,000*.35 - 350 - 200 = 850

You are borrowing $5,000 at 9% interest rate. The total finance cost will be the highest in a: a. 24-month repayment plan b. 36-month repayment plan c. 12-month repayment plan d. 48-month repayment plan e. 3-month repayment plan

d. 48-month repayment plan

A ___ loan is intended to help consumers who have an unhealthy credit situation caused by overusing their credit a. personal b. single-payment c. buy-down d. consolidation e. standard

d. consolidation

You should consider your ___ before you take on a large consumer loan a. educational qualifications b. history of auto ownership c. past employment d. financial plans e. career plans

d. financial plans

A legal claim that allows creditors to liquidate loan collateral is a a. loan application b. note c. security claim d. lien e. loan rollover

d. lien

Which of the following are tax deductible if you itemize deductions? a. mortgage principle, mortgage interest, property taxes, and homeowner's insurance b. mortgage principle and mortgage interest c. mortgage interest, property taxes, and homeowner's insurance d. mortgage interest and property taxes

d. mortgage interest and property taxes

A homeowner's policy does not provide protection for: a. the personal property of family members at home b. the personal property of family members who are in college c. a business unit's property valued below $2,500 while it is on the insured premises d. the personal property of tenants e. the personal property of family members who are traveling

d. the personal property of tenants

The loss in the value of an automobile that occurs over its period of ownership is called: reinsurance a. the acquisition payment b. the market price c. the repurchase commission d. depreciation

depreciation

You should review your credit bureau file every year true false

true

Sheldon has a home valued at $108,000 with an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of the market value of his home, how much can Sheldon borrow using a home equity loan? a. $86,400 b. $80,000 c. $38,000 d. $30,400 e. $16,400

e. $16,400 108,000*.80-70,000=16400

Which of the following statements regarding a consumer loan is true? a. a consumer loan is used chiefly to make repeated purchases of relatively low-cost goods and services b. a consumer loan results from a rather informal process and involves no negotiated contracts c. a consumer loan provides credit cards and checks to the consumers d. a consumer loan provides revolving credit to the consumers e. a consumer loan is used mainly to borrow money to pay for big-ticket items

e. a consumer loan is used mainly to borrow money to pay for big-ticket items

If a borrower has a high FICO score, then there is a. a minimal chance of his or her loan getting approved b. no chance of his or her loan getting approved c. a high chance of having higher monthly payments for his or her loan d. a high chance of more collateral requirements for his or her loan e. a high chance that a lower interest rate will be charged for his or her loan

e. a high chance that a lower interest rate will be charged for his or her loan

Which of the following cards provides direct access to your checking account? a. retail charge cards b. affinity cards c. student credit cards d. reward cards e. bank debit cards

e. bank debit cards

Which of the following statements regarding consumer finance companies is true? a. consumer finance companies accept deposits and give small loans to their members b. consumer finance companies make loans of any size to low-risk borrowers c. consumer finance companies offer consumer loans at the lowest interest rates d. consumer finance companies offer consumer loans only for home mortgage lending e. consumer finance companies make secured and unsecured loans to qualified individuals

e. consumer finance companies make secured and unsecured loans to qualified individuals

Which of the following is not requested in a typical credit card application? a. existing charge accounts b. housing c. employment d. income e. political affiliations

e. political affiliations

Which of the following is an example of phishing? a. using bills in the trash to obtain others' personal information b. rerouting bills to a different address c. obtaining information from financial institutions under false pretenses d. stealing wallets e. pretending to be an employee of a financial institution

e. pretending to be an employee of a financial institution

A personal property floater (PPF) and a personal liability umbrella policy offer similar coverage true false

false

Floods are covered under most homeowner's insurance policies. true false

false

From a financial planning perspective, you med not worry about the size of monthly payments when taking a loan true false

false

Home equity loans are similar to home equity credit lines because they are also not secured with any collateral true false

false

Ideally, you should take inventory of the consumer debt you have outstanding once a year true false

false

Only stocks can be used as collateral for personal loans true false

false

The repayment of the principle of installment loans is made in a lump sum, and the repayment period of installment loans is 6 to 12 months true false

false

Using credit is the ideal way to meet basic living expenses. true false

false

A credit card application requests information that is routinely used to predict creditworthiness true false

true

An individual can be overusing credit even if he or she can afford to make the minimum monthly payments on time true false

true

An unsecured personal credit line is a form of revolving credit true false

true

Credit card issuers must disclose to credit applicants the annual percentage rate (APR) that the charge true false

true

Debit cards work like writing a check true false

true

It is legal for a lender to charge a prepayment penalty true false

true

Never discuss liability at the scene of an accident or with anyone other than the police and the insurer true false

true

Paying a loan on schedule is one way to build a good credit history. true false

true

Suppose you carelessly, but unintentionally, knocked someone down a flight of stairs in your home. You would be covered by your homeowner's insurance. true false

true

The federal government has established a subsidized flood insurance program for homeowners and tenants living in designated communities true false

true

The most common method used by lenders to apply finance charges on credit cards is the average daily balance (ADB) method, including new purchases true false

true

The premiums for homeowner's insurance policies are affected by the type of structure and its location. true false

true

You should not give your credit card account number over the phone to people or organization who call you true false

true