Financing

What is a lien-theory state?

• A state in which a mortgagee holds legal title to a secured property.

• A state in which a mortgagor has equitable title to a secured property.

• A state in which a real estate owner's creditors to record liens against the owner's property.

• A state that allows a lien is considered as a conveyance.

Answer explanation

Those that regard the mortgage as a lien held by the mortgagee (lender) against the property owned by the mortgagor (borrower).

What is the function of a note in a mortgage or trust deed financing arrangement?

• It is the lender's security instrument in the collateral property.

• It is evidence of ownership of the mortgage or trust deed.

• It contains the borrower's promise to maintain the value of the property given as collateral for a loan.

• It is evidence of the borrower's debt to the lender.

When homebuyer Henry pledges his newly purchased home as collateral for a mortgage loan, the evidence of the pledge is the

• trust deed or mortgage.

• promissory note.

• loan commitment.

• loan receipt.

The borrower in a mortgage loan transaction is known as the

• mortgagee.

• mortgagor.

• lienor.

• trustee.

If a borrower obtains an interest-only loan of $200,000 at an annual interest rate of 6%, what is the monthly interest payment?

• $1,200.

• $600.

• $500.

• $1,000.

Answer explanation

Multiply the rate times the loan amount and divide by 12 to calculate monthly interest. ($200,000 x 6%) / 12= 1,000

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?

• $720,000.

• $1,000,000.

• $1,200,000.

• $500,000.

Answer explanation

The loan amount ( annual interest/ interest rate). ($5,000x12) / .06= 1,000,000

A borrower of a $250,000 interest-only loan makes annual interest payments of $18,750. What interest rate is the borrower paying?

• 7.5%.

• 7.75%.

• 3.75%.

• 8.5%.

Answer explanation

Interest rate ( annual payment/ loan amount). $18,750/ 250,000 = 7.5%

Maria borrows $600,000 and pays two points for the loan. How much does she pay in points?

• $1,200.

• $12,000.

• $7,200.

• It depends on the interest rate.

Answer explanation

The discount point is one percent of the loan amount. ($600,000 x .02) or $12,000

Which of the following is true of an amortizing loan?

• Part of each periodic payment is applied to repayment of the loan balance in advance and part is applied to periodic interest in arrears.

• Part of each payment of interest is applied to the loan balance and part is usually paid in advance, except for any points that may be paid, the interest equal payments even though the outstanding loan balance is reduced each year to maintain an even payment.

• The interest rate is reduced each year to maintain an even payment.

• The interest rate is reduced each period because each payment reduces the loan balance and therefore the interest is reduced.

Answer explanation

In an amortizing loan, part of the principal is repaid periodically along with interest, so that prinicpal balance decreases over the life of the loan.

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 subrogation agreement.

• private mortgage insurance.

• a letter of credit.

• a co-signer on the note.

Answer explanation

Mortgage insurance protects the lender the lender against loss of a portion of the loan (typically 20-25%) in case of borrower default. Applies to loans not backed up by Federal Housing Admin (FHA) or Veterans Admin (VA) and that have a down payment of less than 20%.