Real Estate Principles Chapter 15
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1. A loan for $200,000 is made for 30 years at 8% annual interest. The lender and
borrower agree that payments will be made monthly. Assuming two discount
points are charged by the lender and the borrower will not prepay prior to
maturity, what will be the annualized lender's yield?: 8.21%
2. In competitive mortgage markets, lenders must _________ the contract inter-
est rate in exchange for _________ up-front financing costs such as discount
points.: reduce, more
3. The most common type of single family home mortgages loan is?: a fixed-rate, leve
payment, fully amortizing loan
4. Which of the following characteristics distinguish APR from EBC? (check all
the correct answers): -APR assumes no prepayment
-APR ignores appraisal fees
5. True or false: When the loan is closed, the borrower must pay a number of
up-front financing costs. All of these costs (fees) should always be included in
the calculation of lender's yield.: false
6. Assume a $100,000 monthly payment mortgage loan with 30-year term. The
lender is charging an annual interest rate of 10% and two discount points at
origination. Up-front financing costs paid to third parties total $1,000. Assum-
ing the mortgage is held for five years and then prepaid, what is the EBC on
this mortgage?: 10.79%
7. All else equal, an increase in up-front financing costs has a larger impact on
the effective borrowing cost: the shorter is the expected holding period
8. Which of the following describes an early payment mortgage?: In any month, the
borrower makes a principal payment that is larger than the scheduled principal payment
9. The balance of a partially amortizing mortgage loan at loan maturity is not
zero and is typically satisfied with:: a balloon payment
10. A borrower should consider making extra principal payments on a level-pay-
ment mortgage (assuming they are allowed): if the dollar amount of those extra payments could
not be invested at a higher return than the interest rate on the loan.
11. The true (or realized) effective borrowing cost for an ARM is more difficult to
predict than the EBC for a level-payment mortgage because: the mortgage payments
and the holding period are uncertain
1/6
, Real Estate Principles Chapter 15
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12. At any point in time, which of the following ARM products typically has the
lowest effective borrowing cost, all else equal?: 3/1 ARMs
13. Holding the contract interest rate constant, the effective borrowing cost
increases as _____________.: up-front financing costs increase
14. Which of the following loan characteristics must be considered when calcu-
lating the EBCs of two ARM products?: all of the characteristics must be considered
15. Cost associated with obtaining ownership of the property: should not be included in
the EBC calculation
16. A borrower is choosing between a 15-year $100,000 mortgage and a 30-year
$100,000 mortgage. Assume both would have the same contract interest rate
and no up-front financing costs would be associated with either loan. If both
loans remain outstanding until they are fully amortized, on which loan would
more interest be paid?: the 30-year mortgage
17. Assume a $100,000 monthly payment mortgage loan with 30-year term. The
lender is charging an annual interest rate of 10% and two discount points at
origination. Upfront financing costs paid to third parties total $1,000. Assuming
the mortgage is held outstanding by the borrower for the full 30 years, the
lender's yield is ________ percent. (round to two decimal places): 10.24
18. With an interest-only mortgage, the balance of the loan ______ over time.: is
constant
19. The ARM market was first developed in the early 1980s in response to
________ interest rates.: high and volatile
20. Which of the following mortgages typically places more of the interest rate
risk to the lender?: LPMs
21. ________ year mortgages are a common form of LPM, but _________ year
mortgages are also popular.: 30, 15
22. True or false: At the maturity of a partially amortizing loan, the borrower
must sell the property and use the sale proceeds to pay of the lender.: false
23. Given the following information on a monthly payment mortgage, calculate
the level monthly mortgage payment. loan amount: $56,000; loan term: 15
years; (annual) contract interest rate: 7.5%.: $519.13
2/6
Study online at https://quizlet.com/_a0relk
1. A loan for $200,000 is made for 30 years at 8% annual interest. The lender and
borrower agree that payments will be made monthly. Assuming two discount
points are charged by the lender and the borrower will not prepay prior to
maturity, what will be the annualized lender's yield?: 8.21%
2. In competitive mortgage markets, lenders must _________ the contract inter-
est rate in exchange for _________ up-front financing costs such as discount
points.: reduce, more
3. The most common type of single family home mortgages loan is?: a fixed-rate, leve
payment, fully amortizing loan
4. Which of the following characteristics distinguish APR from EBC? (check all
the correct answers): -APR assumes no prepayment
-APR ignores appraisal fees
5. True or false: When the loan is closed, the borrower must pay a number of
up-front financing costs. All of these costs (fees) should always be included in
the calculation of lender's yield.: false
6. Assume a $100,000 monthly payment mortgage loan with 30-year term. The
lender is charging an annual interest rate of 10% and two discount points at
origination. Up-front financing costs paid to third parties total $1,000. Assum-
ing the mortgage is held for five years and then prepaid, what is the EBC on
this mortgage?: 10.79%
7. All else equal, an increase in up-front financing costs has a larger impact on
the effective borrowing cost: the shorter is the expected holding period
8. Which of the following describes an early payment mortgage?: In any month, the
borrower makes a principal payment that is larger than the scheduled principal payment
9. The balance of a partially amortizing mortgage loan at loan maturity is not
zero and is typically satisfied with:: a balloon payment
10. A borrower should consider making extra principal payments on a level-pay-
ment mortgage (assuming they are allowed): if the dollar amount of those extra payments could
not be invested at a higher return than the interest rate on the loan.
11. The true (or realized) effective borrowing cost for an ARM is more difficult to
predict than the EBC for a level-payment mortgage because: the mortgage payments
and the holding period are uncertain
1/6
, Real Estate Principles Chapter 15
Study online at https://quizlet.com/_a0relk
12. At any point in time, which of the following ARM products typically has the
lowest effective borrowing cost, all else equal?: 3/1 ARMs
13. Holding the contract interest rate constant, the effective borrowing cost
increases as _____________.: up-front financing costs increase
14. Which of the following loan characteristics must be considered when calcu-
lating the EBCs of two ARM products?: all of the characteristics must be considered
15. Cost associated with obtaining ownership of the property: should not be included in
the EBC calculation
16. A borrower is choosing between a 15-year $100,000 mortgage and a 30-year
$100,000 mortgage. Assume both would have the same contract interest rate
and no up-front financing costs would be associated with either loan. If both
loans remain outstanding until they are fully amortized, on which loan would
more interest be paid?: the 30-year mortgage
17. Assume a $100,000 monthly payment mortgage loan with 30-year term. The
lender is charging an annual interest rate of 10% and two discount points at
origination. Upfront financing costs paid to third parties total $1,000. Assuming
the mortgage is held outstanding by the borrower for the full 30 years, the
lender's yield is ________ percent. (round to two decimal places): 10.24
18. With an interest-only mortgage, the balance of the loan ______ over time.: is
constant
19. The ARM market was first developed in the early 1980s in response to
________ interest rates.: high and volatile
20. Which of the following mortgages typically places more of the interest rate
risk to the lender?: LPMs
21. ________ year mortgages are a common form of LPM, but _________ year
mortgages are also popular.: 30, 15
22. True or false: At the maturity of a partially amortizing loan, the borrower
must sell the property and use the sale proceeds to pay of the lender.: false
23. Given the following information on a monthly payment mortgage, calculate
the level monthly mortgage payment. loan amount: $56,000; loan term: 15
years; (annual) contract interest rate: 7.5%.: $519.13
2/6
