Chapter 14 Real Estate Principles

A

1. The interest rate of a loan from a local savings and loan may be increased or decreased during the life of the loan. This is an example of a. a variable interest rate. b. escalated interest. c. graduated interest. d. percentage interest.

A

11. When considering a ARM loan, the lender must explain to the borrower, in writing, the a. worst-case scenario. b. best-case scenario. c. average-case scenario. d. respective credit report.

A

3. In order to make adjustable rate mortgage loans more attractive to borrowers, lenders offer a. lower initial interest rates. b. gifts such as appliances, trips, etc. c. lower insurance rates. d. lower down payments.

C

30. ARM loans with teaser rates are avoided by a. mortgage insurers. b. secondary market buyers. c. both a and b. d. neither a nor b.

C

4. What feature in an adjustable rate mortgage protects the borrower against very large monthly payment increases? a. Index rate b. Adjustment period c. Interest rate cap d. Margin

D

22. An individual who is contemplating the purchase of a mortgage as an investment should have a. the property appraised. b. a credit check made on the borrower. c. the title searched. d. all of the above.

A

23. One of the main differences between a land sales contract and a purchase money mortgage is a. the passing of title. b. interest charged. c. time between payments. d. the term of the loan.

B

24. When should a purchase money mortgage properly be recorded? a. Before the deed b. After the deed c. At the same moment as the deed d. Upon full payment

A

25. For a successful wraparound, it is necessary to have an existing mortgage with a. a below-market interest rate. b. a due-on-sale clause. c. an above market interest rate. d. an alienation clause.

C

26. Under the terms of a shared appreciation mortgage a. the loan is made at a below-market interest rate. b. the lender received a portion of the property's appreciation. c. both a and b. d. neither a nor b.

B

27. A contract for deed on residential property a. allows transfer of title to the purchaser at the inception of the mortgage. b. transfers title to the purchasers at the fulfillment of the conditions of the mortgage. c. does not provide for transfer of title. d. requires the owner to occupy the property.

A

28. A company wishing to raise capital by selling its real estate but still remaining as the occupant of the property would enter into a. a sale and lease-back. b. an option agreement. c. an equity mortgage. d. a contract for deed.

D

20. The phrase "taking back paper" applies to a. a cash sale. b. conventional loans. c. VA loans. d. seller financing.

A

21. A mortgage taken by a seller from the buyer in part payment of the purchase price of real estate is known as a. seller financing. b. a conflict of interest. c. usury. d. a second trust deed.

D

10. A builder bought all 20 lots in a subdivision from the developer, who carried most of the purchase price on one loan. To sell the lots, he must include a a. reverse loan clause. b. sale-lease back clause. c. package mortgage clause. d. partial release clause.

C

12. An elderly couple is "house rich, money poor". To obtain money now while still living in their magnificent home, they should look for a a. negative amortization. b. an adjustable rate mortgage. c. a reverse annuity mortgage. d. a graduated payment mortgage.

C

13. Which of the following involves the greatest risk to a lender? a. First mortgage b. FHA loan c. Construction loan d. VA loan

C

14. Construction loans are a. long term, low risk. b. long term, high risk. c. short term, high risk. d. short term, low risk.

A

15. Equity sharing is based on the concept of someone who has assets sharing those assets in exchange for a. a share of the ownership. b. tax benefits. c. both a and b. d. neither a nor b.

C

16. A blended-rate loan arrangement is designed to a. raise the rate of interest to the buyer. b. lower the sales price of the property. c. attract buyers who are discouraged by high interest rates. d. pay off a loan sooner.

B

17. Each of the following statements about open-end mortgage clauses is true EXCEPT a. using an open-end clause, the new amount borrowed is added to the mortgage balance. b. they are used in government loans like DVA and FHA. c. they are used in conventional mortgages. d. funds borrowed using an open-end clause are reamortized over the remaining like of the mortgage.

B

18. When an existing loan at a low interest rate is refinanced by a new loan at an interest rate between the current market rate and the rate of the old loan, the result is a a. combined rate. b. blended loan. c. wraparound loan. d. merged loan.

B

19. A loan arrangement whereby a lender extends a line of credit is a. a buy-down mortgage. b. an open-end mortgage. c. a wraparound mortgage. d. a purchase money mortgage.

D

2. All of the following may be used for setting ARM interest rates EXCEPT a. one-year U.S. Treasury securities. b. six-month Treasury bills. c. cost of funds to thrift institutions. d. Gross National Product is not used to set ARM interest rates.

C

29. An overencumbered property would be one with a market value of a. $125,000 with a first mortgage of $75,000 and a second mortgage of $26,000. b. $375,000 with a first mortgage of $25,000 and a second mortgage of $200,000. c. $120,000 with a first mortgage of $110,000 and a second mortgage of $15,000. d. $49,500 with a first mortgage of $20,000 and a second mortgage of $1,000 and a third mortgage of$2,000.

C

5. The interest rate of an adjustable rate mortgage may rise or fall based on the a. interest rate cap. b. adjustment period. c. index. d. margin.

B

6. In a graduated payment mortgage, the graduated part is the a. interest rate. b. monthly payment. c. maturity date. d. entire loan is graduated.

D

7. Prior to the introduction of adjustable rate mortgages, the FHLBB approved the use of a. variable rate mortgages. b. renegotiable rate mortgages. c. both a and b. d. neither a or b.

D

8. A new home developer who is including appliances with the sale of each house most probably would assist the buyer in obtaining a a. blanket mortgage. b. shared appreciation mortgage. c. equity sharing mortgage. d. package mortgage.

A

9. When two or more properties serve as collateral for the same loan, it is called a a. blanket mortgage. b. tandem mortgage. c. security mortgage. d. blended rate mortgage.