REAL 4000: Singh test 3 -UGA- Latest
Exam Fully Solved.
two documents used to create a mortgage loan - Answer note and mortgage
note - Answer Contract that establishes the financial obligation and the exact terms of the
loan; creates the obligation to repay the loan in accordance with its terms
mortgage - Answer contract by which the borrower grants the lender a security interest in
the property; ties the real estate being financed to the loan used to pay for the real estate
Fixed Rate Mortgage - Answer interest rate is stated and does not change during the life of
the loan
Adjustable Rate Mortgage (ARM) - Answer interest will change at some point during the life
of the loan
variations on how ARMs change - Answer -interest rates on some construction loans change
every month
-once was a 40 year loan that changed rates after 20 years
How is the initial rate calculated? - Answer The annual rate of interest is calculated as the
sum of an index rate plus a margin
index rate - Answer market determined rate beyond control of either borrower or lender
margin - Answer the lenders markup and reflects the differences in risk between the index
rate and the loan
what is the margin usually between? - Answer 200-300 basis points; 100 points = 1%
for ARMs, how often does the interest rate change? - Answer frequency of change is stated in
the note
longer lock - Answer smaller interest rate savings
shorter lock - Answer larger interest rate savings
, teaser rate - Answer an initial interest rate that is temporarily reduced to some value below
index + margin
Why is it important to know if there are teaser rates? - Answer they can lead to large one
time jumps in the loan's interest rate and payment when they expire
periodic caps - Answer limit how much the payment or interest rate can change at any one
time
lifetime caps - Answer limit how much the payments or interest rate can change in total
during the life of the loan
payments can be: - Answer -fully amortizing
-partially amortizing
-nonamortizing
fully amortizing - Answer interest obligation is paid off every month and all principal is repaid
by the end of the loan's term
partially amortizing - Answer -interest obligation is paid off every month but there is still
principal outstanding when the loan reaches maturity
-common for commercial mortgages where there are separate and different loan and
amortization terms
-requires a final balloon payment
Nonamortizing - Answer -Interest obligation is paid off every month but the payment terms
do not require any principal to be repaid
-entire principal balance is due when the loan matures
-known as (IO) loans
right of prepayment - Answer clause gives the borrower the option to pay down the
mortgage at any time
note wording about right of prepayment - Answer 1: the note may say nothing about
prepayment
2: the note may grant the borrower the right to prepay without penalty
3:the note may allow the borrower to prepay if they pay a prepayment penalty
Exam Fully Solved.
two documents used to create a mortgage loan - Answer note and mortgage
note - Answer Contract that establishes the financial obligation and the exact terms of the
loan; creates the obligation to repay the loan in accordance with its terms
mortgage - Answer contract by which the borrower grants the lender a security interest in
the property; ties the real estate being financed to the loan used to pay for the real estate
Fixed Rate Mortgage - Answer interest rate is stated and does not change during the life of
the loan
Adjustable Rate Mortgage (ARM) - Answer interest will change at some point during the life
of the loan
variations on how ARMs change - Answer -interest rates on some construction loans change
every month
-once was a 40 year loan that changed rates after 20 years
How is the initial rate calculated? - Answer The annual rate of interest is calculated as the
sum of an index rate plus a margin
index rate - Answer market determined rate beyond control of either borrower or lender
margin - Answer the lenders markup and reflects the differences in risk between the index
rate and the loan
what is the margin usually between? - Answer 200-300 basis points; 100 points = 1%
for ARMs, how often does the interest rate change? - Answer frequency of change is stated in
the note
longer lock - Answer smaller interest rate savings
shorter lock - Answer larger interest rate savings
, teaser rate - Answer an initial interest rate that is temporarily reduced to some value below
index + margin
Why is it important to know if there are teaser rates? - Answer they can lead to large one
time jumps in the loan's interest rate and payment when they expire
periodic caps - Answer limit how much the payment or interest rate can change at any one
time
lifetime caps - Answer limit how much the payments or interest rate can change in total
during the life of the loan
payments can be: - Answer -fully amortizing
-partially amortizing
-nonamortizing
fully amortizing - Answer interest obligation is paid off every month and all principal is repaid
by the end of the loan's term
partially amortizing - Answer -interest obligation is paid off every month but there is still
principal outstanding when the loan reaches maturity
-common for commercial mortgages where there are separate and different loan and
amortization terms
-requires a final balloon payment
Nonamortizing - Answer -Interest obligation is paid off every month but the payment terms
do not require any principal to be repaid
-entire principal balance is due when the loan matures
-known as (IO) loans
right of prepayment - Answer clause gives the borrower the option to pay down the
mortgage at any time
note wording about right of prepayment - Answer 1: the note may say nothing about
prepayment
2: the note may grant the borrower the right to prepay without penalty
3:the note may allow the borrower to prepay if they pay a prepayment penalty
