Loan and Mortgage Types Quiz

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Questions and Answers

What is the key difference between debt and loan?

Debt is something one party owes another, typically money; while a loan is money given to another party in exchange for repayment of the principal amount plus interest. (correct)

Debt is always long term, while a loan can be short, medium, or long term.

Debt is always secured by collateral, while a loan may be unsecured.

Debt is typically used for personal purposes, while a loan is used for business purposes.

What distinguishes a straight or flat loan from an amortizing loan?

In a straight or flat loan, the interest is fixed, while in an amortizing loan, the interest varies over time.

A straight or flat loan is typically short term, while an amortizing loan is always long term.

A straight or flat loan is always unsecured, while an amortizing loan is secured by collateral.

In a straight or flat loan, interest is payable periodically during the term, with the principal only due upon maturity; while in an amortizing loan, periodic repayments include both interest and principal reduction. (correct)

What factors do lenders consider before offering a loan to a prospective borrower?

Age, gender, and marital status

Education level, employment history, and social media presence

Geographic location, hobbies, and favorite color

Income, credit score, and debt levels (correct)

What is the primary purpose of a secured loan?

To provide the lender with collateral in case the borrower defaults on the loan Signup and view all the answers

What is the formula for simple interest?

$I = P * r * t$ Signup and view all the answers

What concept states that money is worth more now than in the future due to its earning potential?

Time value of money Signup and view all the answers

What does compound interest allow the total interest earned to do?

Earn interest on the next compounding period Signup and view all the answers

What is used to determine the future value of a present sum given an interest rate and the number of periods?

Compounding factor Signup and view all the answers

What is the reverse of compounding, converting future values to present value?

Discounting Signup and view all the answers

What does amortization involve?

Gradual payment of loans through periodic installments, covering interest and principal Signup and view all the answers

What does an amortization schedule tabulate?

Payments for principal, interest due, total payment for each period, and outstanding balance Signup and view all the answers

What are mortgage clauses examples of?

Defining the terms and conditions of the mortgage agreement Signup and view all the answers

What can third parties do to secure a principal obligation?

Mortgage their own property Signup and view all the answers

What are examples of void stipulations in mortgage?

Pactum commisorium and pactum de non alieno Signup and view all the answers

What is interest?

The amount paid for the use of borrowed money Signup and view all the answers

What does the number of compounding periods depend on?

The agreed compounding period between borrower and lender Signup and view all the answers

What is the definition of encumbrance?

Any claim against a property, affecting its transferability and use Signup and view all the answers

What is the primary difference between unsecured loans and secured loans?

Secured loans are backed by collateral Signup and view all the answers

What is the definition of a lien?

A monetary claim intended to ensure payment Signup and view all the answers

What are the repayment period categories for loans?

Short-term, medium-term, and long-term Signup and view all the answers

Which type of loan does not require collateral but has higher Annual Percentage Rates (APR) due to the higher risk?

Unsecured loans Signup and view all the answers

What is the definition of a mortgage?

A contract where a debtor gives security for the fulfillment of a principal obligation Signup and view all the answers

What are the two primary types of interest on loans mentioned in the text?

Diminishing balance and flat rate Signup and view all the answers

What is the main characteristic of turnkey loan arrangements?

The lender has control over the project and its income for a specified period Signup and view all the answers

What is the definition of mortgagor in a mortgage agreement?

The property owner offering security Signup and view all the answers

What is the primary difference between conventional and legal mortgages?

The legal enforceability of the contract Signup and view all the answers

What are the two main types of mortgages mentioned in the text?

Fixed-rate and adjustable rate Signup and view all the answers

What type of loan is backed by collateral like real estate, chattel, or bonds?

Mortgages Signup and view all the answers

What type of mortgage is backed by movable property, such as equipment or vehicles?

Chattel mortgage Signup and view all the answers

In a mortgage agreement, what does the term 'mortgagor' refer to?

The property owner offering security Signup and view all the answers

What does a lien in a mortgage agreement represent?

A monetary claim intended to ensure payment Signup and view all the answers

What is the primary characteristic of an open-end mortgage?

It allows the borrower to make additional borrowings Signup and view all the answers

What is the primary purpose of a Build-Transfer-and-Operate (BTO) contract?

To involve private entities in building infrastructure facilities Signup and view all the answers

What distinguishes a blanket mortgage from other types of mortgages?

It covers multiple properties as collateral Signup and view all the answers

What is the primary difference between simple interest and compound interest?

Compound interest allows interest to be earned on previously earned interest Signup and view all the answers

What type of loan does not require collateral but has higher Annual Percentage Rates (APR) due to the higher risk?

Personal loan Signup and view all the answers

What does the term 'encumbrance' refer to in the context of property?

Any claim against a property affecting its transferability and use Signup and view all the answers

What is the primary characteristic of a fixed-rate mortgage?

It has a fixed interest rate for the entire loan term Signup and view all the answers

What distinguishes a legal mortgage from a conventional mortgage?

It is registered with the local land registry Signup and view all the answers

What is the primary characteristic of a closed mortgage?

It restricts prepayment or renegotiation of terms before maturity Signup and view all the answers

Study Notes

Types and Uses of Loans and Mortgages

Interest on loans can be simple or based on diminishing balance, depending on the type of collateral involved, such as car loans or real estate property.
Turnkey loan arrangements involve the lender having control over the project and its income for a specified period.
Build-Transfer-and-Operate (BTO) contracts involve private entities building infrastructure facilities on a turnkey basis and operating them on behalf of the implementing agency.
Loan repayment periods can be short-term (up to 1 year), medium-term (1 to 5 years), or long-term (more than 5 years).
Loans can be used for personal purposes, property acquisition, business capitalization, project financing, industrial needs, or agricultural purposes.
Unsecured loans, like credit cards and personal loans, do not require collateral but have higher Annual Percentage Rates (APR) due to the higher risk.
Secured loans, such as mortgages and auto loans, are backed by collateral like real estate, chattel, or bonds.
Encumbrance refers to any claim against a property, affecting its transferability and use, while a lien is a monetary claim intended to ensure payment.
A mortgage is a contract where a debtor gives security for the fulfillment of a principal obligation to a creditor, usually by designating immovable property as collateral.
Mortgages can be conventional, legal, judicial, equitable, chattel, blanket, or balloon, depending on the agreement and circumstances.
Types of mortgages include fixed-rate, adjustable rate, closed, open, and open-end mortgages, each with distinct characteristics.
In a mortgage agreement, the mortgagor is the property owner offering security, while the mortgagee is the party accepting the security, typically the creditor.