6. Pre-Test M/C
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Questions and Answers

What does exercising the conversion option in an ARM usually lead to?

  • the market rate at the time the loan was originated
  • 2% above the loan’s original adjustable rate
  • the index rate at the time of conversion
  • the market rate at the time of conversion (correct)

    • In the given scenario, what type of loan do the Willards have?

  • package mortgage
  • hybrid ARM (correct)
  • wraparound mortgage
  • blanket loan

    • What is NOT an advantage of a 15-year loan?

  • borrower equity builds up quickly
  • a lower interest rate
  • a lower amount of total interest paid
  • lower monthly payments (correct)

    • What is the purpose of a negative amortization cap?

    <p>total amount the borrower can owe above the original loan amount</p> Signup and view all the answers

    What type of ARM is described for the Mitchells, with an initial 7-year rate adjustment period and subsequent annual adjustments?

    <p>7/1 ARM</p> Signup and view all the answers

    What is the purpose of a discount rate in the Federal Reserve System?

    <p>To charge interest when borrowing from a Federal Reserve Bank</p> Signup and view all the answers

    What does a mortgage insurance primarily protect the lender from?

    <p>Foreclosure loss in case of default</p> Signup and view all the answers

    In a 3/1 hybrid ARM, when can the lender adjust the interest rate after the initial fixed-rate period?

    <p>Annually</p> Signup and view all the answers

    What does a negative amortization cap limit for a borrower?

    <p>The loan amount above the original sum</p> Signup and view all the answers

    What does a 7/1 ARM represent in terms of rate adjustment periods?

    <p>Annual rate adjustments for 7 years</p> Signup and view all the answers

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