Final exam mortgages

Which of the following is NOT a common reason people get a mortgage?

• Buy a house

• Renovate a house

• Build out a house

• Refinance an existing mortgage

Answer explanation

People do not get a mortgage to BUILD OUT. They do to BUY OUT a property 😀

What is the role of a mortgage broker?

• Provide advisory services to borrowers

• Distribute financial products

• Suggest the product that would pay the highest commission

• Facilitate the borrower's interaction with different stakeholders

Answer explanation

In the EU, brokers are prohibited by law to maximise their profit in spite of the borrower's benefit.

Hence, they always have to favour the borrower's interest.

Which of the following are NOT risk metrics?

• APRC

• LTV

• DTI

• FSMA

Answer explanation

The APRC is a cost metric taking into account all costs associated with a loan (interest, commissions, servicing)!

The FSMA is the Belgian financial market authority!

A Buy Out CAN BE the combination of which mortgage operations?

• Buy and Refinance

• Buy and Build

• Renovate and Refinance

• Build and Refinance

Answer explanation

A Buy Out can the combination of a purchase (Buy) and a refinance operation!

Check the minute 7:35 of the video lecture Mortgage 101 for more info.

Which items are taken into consideration for the calculation of the APRC?

• Interest, Insurance costs, Service fees, Taxes

• Interest and taxes

• Interest and Service fees

• Insurance costs, Taxes, Service fees

Answer explanation

See video Mortgage 101 from minute 12:30

What does APRC stands for?

• Annual Percentage Rate Cost

• Average Percentage Rate of Charge

• Annual Percentage Rate of Charge

• Average Percentage Rate Cost

What does the DTI measure?

• Overall risk of the mortgage

• How many existing credits the borrower has

• The creditworthiness of the borrower

• How much negative cash flow can be handled by the borrower's positive cash flow

Answer explanation

The DTI measures the creditworthiness of the borrower.

It's a ratio of the borrowers's liabilities (negative cash flows) and incomes (positive cash flows).

The interest rate is

• the compensation the lender asks for to lose availability of a certain amount of money for a certain period of time

• the price of a mortgage

• the only cost metric to look for in mortgages

• a risk metric

In a mortgage, ______ to ownership of the collateral is transferred temporarily to the borrower

Answer explanation

The lender gets a right to the ownership of the real estate property used as collateral that can be triggered in case the borrower default's on the payments.

A living surplus below €_____ may cause the lender to refuse the mortgage!