Real Estate Finance and Investments 15th Edition By Brueggeman – Test Bank

Real Estate Finance and Investments 15th Edition By Brueggeman – Test Bank

CHAPTER 4

Fixed Interest Rate Mortgage Loans

TRUE/FALSE

1. Inflation makes very little difference to lenders of and investors needing money. (F)

1. Lenders and investors worry about default, interest rate, marketability, and liquidity risks. (T)

1. One difference between the constant amortizing mortgage (CAM) and the constant payment mortgage (CPM) is the interest paid and loan amortization relationship.  With a CAM, the loan amortization and interest paid are directly related and with the CPM the loan amortization and the interest paid are inversely related. (T)

1. Determining a loan balance on a CPM is a simple future value of an annuity problem. (F)

1. With every CPM, the effective costs of borrowing are higher than the stated rate of the loan. (F)

1. Truth-in-lending requires the borrower to tell the truth on the loan application. (F)

1. The annual percentage rate, disclosed at the loan closing, closely approximates the borrower’s true cost of funds. (F)

1. Prepayment penalties increase the lender’s mortgage yield and discount points decrease it. (F)

1. Origination fees are tax deductible as an interest expense. (F)

1. Graduated payment mortgages are loans available to people who have graduated from college. (F)

1. Borrowers with fixed-rate mortgages generally benefit if actual inflation is higher than expected inflation. (T)

1. The APR for a loan assumes it is prepaid after ten years. (F)

1. With a reverse mortgage, the borrower receives payments from the bank. (T)

MULTIPLE CHOICE

1. A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5%. What would the monthly payment be? (C)

1. 1. $694
   2. $1,042
   3. $1,342
   4. $1,355
   5. Not enough information

1. A borrower takes out a 30-year mortgage loan for $250,000 with an interest rate of 5% and monthly payments. What portion of the first month’s payment would be applied to interest? (B)

1. 1. $694
   2. $1,042
   3. $1,342
   4. $1,355
   5. Not enough information

1. A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and monthly payments. If she wants to pay off the loan after 8 years, what would be the outstanding balance on the loan? (D)

1. 1. $84,886
   2. $91,246
   3. $146,667
   4. $175,545
   5. Not enough information