1. (TCO 3) A borrower takes out a 30-year mortgage loan for \$250,000 with an interest rate of 5%. What would the monthly payment be?

\$694
\$1,042
\$1,342
\$1,355

2. (TCO 3) A borrower takes out a 30-year mortgage loan for \$150,000 with an interest rate of 5% and monthly payments. What portion of the first month’s payment would be applied to interest?

\$625
\$805
\$1,036
\$1,355

3. (TCO 3) A borrower has a 30-year mortgage loan for \$300,000 with an interest rate of 6% and monthly payments. If she wants to pay off the loan after 8 years, what would be the outstanding balance on the loan?

\$80,000
\$91,246
\$240,000
\$263,317

4. (TCO 3) A borrower takes out a 30-year mortgage loan for \$100,000 with an interest rate of 6% plus 4 points. What is the effective annual interest rate on the loan if the loan is carried for all 30 years?

5. 6%
6. 0%
6. 4%
6. 6%

5. (TCO 3) A borrower obtains a \$225,000 reverse annuity mortgage with monthly payments over 10 years. If the interest rate of the mortgage loan is 8%, what is the monthly payment received by the borrower?

\$151
\$1,230
\$1,650
\$2,730

6. (TCO 3) At the end of five years, calculating the loan balance of a constant payment mortgage is simply the ________.

present value of a single amount
future value of a single amount
present value of an ordinary annuity
future value of an ordinary annuity

7. (TCO 3) One of the most popular amortizing mortgages today is the constant payment mortgage. Which of the following characterizes the components of the CPM payment over the life of the loan?
Interest Amortization Payment

Decreasing Decreasing Decreasing
Increasing Decreasing Constant
Decreasing Increasing Constant
Constant Constant Constant

8. (TCO 3) If a loan amount is “taken down” as irregular periodic payments until payments and accrued interest reach an agreed-upon loan amount, this is an example of a ________.

ARM
CPM
GPM
RAM

9. (TCO 3) Assuming all APRs equal, the effective interest rate on a loan is highest when ________.

the loan has no points and a 30 year maturity and is prepaid in five years
the loan has no points and is prepaid at maturity
points are charged and the loan is paid off at maturity in 30 years
points are charged and the loan has a 30 year maturity but prepaid in five years

10. (TCO 4) If one of the terms of an ARM read, interest is capped at 2%/5%, what would that mean?

The borrower can choose the cap he wants by simply circling the appropriate choice
The interest rate has a 2% annual cap rate and a 5% lifetime cap rate
The interest rate has a 5% annual cap rate and a 2% lifetime cap rate
The interest rate has a 2% annual cap rate and a 5% floor cap rate

11. (TCO 4) Given that every other factor is equal, which of the following ARMs will have the lowest expected cost?

An ARM with payment caps and negative amortization
An ARM with interest rate caps
An ARM with longer Adjustment interval
An ARM with no caps or limitations

12. (TCO 4)

 LOAN 1 LOAN 2 LOAN 3 LOAN 4 Initial Interest Rate ? ? ? ? Loan Maturity (years) 20 20 20 20 % Margin Above Index 3% — 3% 3% Adjustment Interval 1 yr. — 1 yr. 1 yr. Points 1% 1% 1% 1% Interest Rate Cap NONE —- 1%/yr. 3%/yr.

Which loan in the above table is an FRM?

Loan 1
Loan 2
Loan 3
Loan 4

13. (TCO 4) Under which scenario is negative amortization likely to occur?
Payment Cap Interest Rates

None Increasing
None Decreasing
7.5% Increasing
7.5% Decreasing

14. (TCO 4) Negative amortization ________.

reduces the principal balance of loan
increase the principal balance of a loan
maintains the principal balance of a loan
none of the above

15. (TCO 4) Examples of indexes that can be used to reset the interest rate on an ARM include all but ________.
the average cost-of-funds index (COFI)
LIBOR
CD rates
Treasury security rates