Perry Real Estate College – National Verified
Multiple Choice and Conceptual Actual
Emended Exam Questions With Reviewed 100%
Correct Detailed Answers
Guaranteed Pass!!Current Update!!
1. What is a lien-theory state?
a. A state in which a mortgagee holds legal title to a secured property.
b. A state in which a mortgagee has equitable title to a secured property.
c. A state that allows a real estate owner's creditors to record liens against the owner's property.
d. A state in which a lien is considered as a conveyance. - ANSWER 7.1 (b) A state in which a
mortgagee has equitable title to a secured property.
States differ in their interpretation of who owns mortgaged property. Those that regard the
mortgage as a lien held by the mortgagee (lender) against the property owned by the
mortgagor (borrower) are called lien- theory states. Those that regard the mortgage document
as a conveyance of ownership from the mortgagor to the mortgagee are called title-theory
states.
2. What is the function of a note in a mortgage or trust deed financing arrangement?
a. It is the lender's security instrument in the collateral property.
b. It is evidence of ownership of the mortgage or trust deed.
c. It contains the borrower's promise to maintain the value of the property given as collateral for
a loan.
d. It is evidence of the borrower's debt to the lender. - ANSWER 7.2 (d) It is evidence of the
borrower's debt to the lender.
,A valid mortgage or trust deed financing arrangement requires a note as evidence of the debt.
3. When homebuyer Henry pledges his newly purchased home as collateral for a mortgage
loan, the evidence of the pledge is the
a. trust deed or mortgage.
b. promissory note.
c. loan commitment.
d. loan receipt. - ANSWER 7.3 (a) trust deed or mortgage.
The mortgage or trust deed is evidence of the collateral pledge of the purchased property as
security for the loan.
4. The borrower in a mortgage loan transaction is known as the
a. mortgagee.
b. mortgagor.
c. lienor.
d. trustee. - ANSWER 7.4 (b) mortgagor.
The mortgagor is the borrower and the mortgagee is the lender. As a memory aid, notice that
"lender" and "mortgagee" both have two "e"s. "Mortgagor" and "borrower" both have two
"o"s.
4. If a borrower obtains an interest-only loan of $200,000 at an annual interest rate of 6%, what
is the monthly interest payment?
a. $1,200.
b. $600.
c. $500.
,d. $1,000. - ANSWER 7.5 (d) $1,000.
Multiply the rate times the loan amount and divide by 12 to calculate monthly interest. Thus,
($200,000 x 6%) ÷ 12 = $1,000.
5. If a borrower's monthly interest payment on an interest-only loan at an annual interest rate
of 6% is $5,000, how much was the loan amount?
a. $720,000.
b. $1,000,000.
c. $1,200,000.
d. $500,000. - ANSWER 7.6 (b) $1,000,000.
The equation for the loan amount is (annual interest divided by the interest rate) = loan
amount. Thus, ($5,000 x 12) ÷ .06 = $1,000,000.
6. A borrower of a $250,000 interest-only loan makes annual interest payments of $18,750.
What interest rate is the borrower paying?
a. 7.5%.
b. .75%.
c. 3.75%.
d. 8.5%. - ANSWER 7.7 (a) 7.5%.
The equation for the interest rate is (annual payment / loan amount) = interest rate. Thus
($18,750 / $250,000) = 7.5%.
7. Maria borrows $600,000 and pays two points for the loan. How much does she pay in points?
a. $1,200.
, b. $12,000.
c. $7,200.
d. It depends on the interest rate. - ANSWER 7.8 (b) $12,000.
A discount point is one percent of the loan amount. Thus, one point on a $600,000 loan equals
($600,000 x 2%) or ($600,000 x .02), or $12,000.
8. Which of the following is true of an amortizing loan?
a. The amount of annual interest paid is the same for every year of the loan term.
b. Part of each periodic payment is applied to repayment of the loan balance in advance and
part is applied to payment of interest in arrears.
c. Except for any points that may be paid, the interest on the loan balance is usually paid in
advance.
d. The interest rate is reduced each year to maintain equal payments even though the
outstanding loan balance is smaller. - ANSWER 7.9 (b) Part of each periodic payment is
applied to repayment of the loan balance in advance and part is applied to payment of interest
in arrears.
In an amortizing loan, part of the principal is repaid periodically along with interest, so that the
principal balance decreases over the life of the loan. The annual interest is never the same,
since the principal balance to which the interest rate applies changes every year. Interest on a
loan is always paid in arrears, not in advance.
9. For a loan that is not backed by the Federal Housing Administration or Veterans
Administration, and for which the borrower is making a down payment of less than 20%, the
lender is likely to require the borrower to obtain
a. a subrogation agreement.
b. private mortgage insurance.
c. a letter of credit.
Multiple Choice and Conceptual Actual
Emended Exam Questions With Reviewed 100%
Correct Detailed Answers
Guaranteed Pass!!Current Update!!
1. What is a lien-theory state?
a. A state in which a mortgagee holds legal title to a secured property.
b. A state in which a mortgagee has equitable title to a secured property.
c. A state that allows a real estate owner's creditors to record liens against the owner's property.
d. A state in which a lien is considered as a conveyance. - ANSWER 7.1 (b) A state in which a
mortgagee has equitable title to a secured property.
States differ in their interpretation of who owns mortgaged property. Those that regard the
mortgage as a lien held by the mortgagee (lender) against the property owned by the
mortgagor (borrower) are called lien- theory states. Those that regard the mortgage document
as a conveyance of ownership from the mortgagor to the mortgagee are called title-theory
states.
2. What is the function of a note in a mortgage or trust deed financing arrangement?
a. It is the lender's security instrument in the collateral property.
b. It is evidence of ownership of the mortgage or trust deed.
c. It contains the borrower's promise to maintain the value of the property given as collateral for
a loan.
d. It is evidence of the borrower's debt to the lender. - ANSWER 7.2 (d) It is evidence of the
borrower's debt to the lender.
,A valid mortgage or trust deed financing arrangement requires a note as evidence of the debt.
3. When homebuyer Henry pledges his newly purchased home as collateral for a mortgage
loan, the evidence of the pledge is the
a. trust deed or mortgage.
b. promissory note.
c. loan commitment.
d. loan receipt. - ANSWER 7.3 (a) trust deed or mortgage.
The mortgage or trust deed is evidence of the collateral pledge of the purchased property as
security for the loan.
4. The borrower in a mortgage loan transaction is known as the
a. mortgagee.
b. mortgagor.
c. lienor.
d. trustee. - ANSWER 7.4 (b) mortgagor.
The mortgagor is the borrower and the mortgagee is the lender. As a memory aid, notice that
"lender" and "mortgagee" both have two "e"s. "Mortgagor" and "borrower" both have two
"o"s.
4. If a borrower obtains an interest-only loan of $200,000 at an annual interest rate of 6%, what
is the monthly interest payment?
a. $1,200.
b. $600.
c. $500.
,d. $1,000. - ANSWER 7.5 (d) $1,000.
Multiply the rate times the loan amount and divide by 12 to calculate monthly interest. Thus,
($200,000 x 6%) ÷ 12 = $1,000.
5. If a borrower's monthly interest payment on an interest-only loan at an annual interest rate
of 6% is $5,000, how much was the loan amount?
a. $720,000.
b. $1,000,000.
c. $1,200,000.
d. $500,000. - ANSWER 7.6 (b) $1,000,000.
The equation for the loan amount is (annual interest divided by the interest rate) = loan
amount. Thus, ($5,000 x 12) ÷ .06 = $1,000,000.
6. A borrower of a $250,000 interest-only loan makes annual interest payments of $18,750.
What interest rate is the borrower paying?
a. 7.5%.
b. .75%.
c. 3.75%.
d. 8.5%. - ANSWER 7.7 (a) 7.5%.
The equation for the interest rate is (annual payment / loan amount) = interest rate. Thus
($18,750 / $250,000) = 7.5%.
7. Maria borrows $600,000 and pays two points for the loan. How much does she pay in points?
a. $1,200.
, b. $12,000.
c. $7,200.
d. It depends on the interest rate. - ANSWER 7.8 (b) $12,000.
A discount point is one percent of the loan amount. Thus, one point on a $600,000 loan equals
($600,000 x 2%) or ($600,000 x .02), or $12,000.
8. Which of the following is true of an amortizing loan?
a. The amount of annual interest paid is the same for every year of the loan term.
b. Part of each periodic payment is applied to repayment of the loan balance in advance and
part is applied to payment of interest in arrears.
c. Except for any points that may be paid, the interest on the loan balance is usually paid in
advance.
d. The interest rate is reduced each year to maintain equal payments even though the
outstanding loan balance is smaller. - ANSWER 7.9 (b) Part of each periodic payment is
applied to repayment of the loan balance in advance and part is applied to payment of interest
in arrears.
In an amortizing loan, part of the principal is repaid periodically along with interest, so that the
principal balance decreases over the life of the loan. The annual interest is never the same,
since the principal balance to which the interest rate applies changes every year. Interest on a
loan is always paid in arrears, not in advance.
9. For a loan that is not backed by the Federal Housing Administration or Veterans
Administration, and for which the borrower is making a down payment of less than 20%, the
lender is likely to require the borrower to obtain
a. a subrogation agreement.
b. private mortgage insurance.
c. a letter of credit.
