5.1 Loan Repayment

Interest on real estate loans is normally paid:

• in arrears

• in advance

• on estimated principal

• annually

Answer explanation

interest on a home loan is paid for the previous month, meaning it is paid in arrears.

The act of extinguishing a debt by regular payments is known as:

• depreciation

• amortization

• prepayments

• acceleration

Answer explanation

amortization: both principal and interest owed are extinguished by the end of loan term.

What is the maximum interest rate allowed on a real estate loan in Arizona?

• 1% over the prime rate

• 1.5% over the prime rate

• 2% over the prime rate

• there is no maximum interest rate

The difference between the value and the mortgage balance is called:

• profit

• equity

• loan-to-value ratio

• net value

A type of loan in which each payment applies to principal and interest is:

• amortized

• package

• balloon

• open ended

Answer explanation

amortized loan applies payments to both principal and interest

V gets a 10 year straight loan for $60,000 at an interest rate of 4% to finance the purchase of a vacation cottage in the hills. Every month, she pays the lender $200. In 10 years, how much will V owe the lender?

• $0

• $24,000

• $60,000

• $84,000

Answer explanation

a straight loan means the borrower pays only interest during the loan term and makes a lump sum payment of principal at the end

If a seller agrees to carryback $30,000 for 30 years at 7.2% interest and the monthly payment is $203.64, what is the remaining loan balance after 3 months?

• $29,976.36

• $29,952.58

• $29,928.66

• $29,904.59

Answer explanation

look in notebook for math work

The type of interest usually charged on home loans is:

• annuity interest

• accrued interest

• compound interest

• simple interest

If a mortgage loan payment is paid PITI, which portion goes into an escrow (impound) account?

• interest and taxes

• taxes and insurance

• insurance and principal

• principal and interest

A loan that is amortized over 30 years but calls for the balance to become due at the end of the seventh year is called a:

• balloon loan

• blanket loan

• purchase money loan

• reverse annuity loan