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?

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

    What is the formula for simple interest?

    <p>$I = P * r * t$</p> Signup and view all the answers

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

    <p>Time value of money</p> Signup and view all the answers

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

    <p>Earn interest on the next compounding period</p> 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?

    <p>Compounding factor</p> Signup and view all the answers

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

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

    What does amortization involve?

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

    What does an amortization schedule tabulate?

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

    What are mortgage clauses examples of?

    <p>Defining the terms and conditions of the mortgage agreement</p> Signup and view all the answers

    What can third parties do to secure a principal obligation?

    <p>Mortgage their own property</p> Signup and view all the answers

    What are examples of void stipulations in mortgage?

    <p>Pactum commisorium and pactum de non alieno</p> Signup and view all the answers

    What is interest?

    <p>The amount paid for the use of borrowed money</p> Signup and view all the answers

    What does the number of compounding periods depend on?

    <p>The agreed compounding period between borrower and lender</p> Signup and view all the answers

    What is the definition of encumbrance?

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

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

    <p>Secured loans are backed by collateral</p> Signup and view all the answers

    What is the definition of a lien?

    <p>A monetary claim intended to ensure payment</p> Signup and view all the answers

    What are the repayment period categories for loans?

    <p>Short-term, medium-term, and long-term</p> 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?

    <p>Unsecured loans</p> Signup and view all the answers

    What is the definition of a mortgage?

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

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

    <p>Diminishing balance and flat rate</p> Signup and view all the answers

    What is the main characteristic of turnkey loan arrangements?

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

    What is the definition of mortgagor in a mortgage agreement?

    <p>The property owner offering security</p> Signup and view all the answers

    What is the primary difference between conventional and legal mortgages?

    <p>The legal enforceability of the contract</p> Signup and view all the answers

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

    <p>Fixed-rate and adjustable rate</p> Signup and view all the answers

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

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

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

    <p>Chattel mortgage</p> Signup and view all the answers

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

    <p>The property owner offering security</p> Signup and view all the answers

    What does a lien in a mortgage agreement represent?

    <p>A monetary claim intended to ensure payment</p> Signup and view all the answers

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

    <p>It allows the borrower to make additional borrowings</p> Signup and view all the answers

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

    <p>To involve private entities in building infrastructure facilities</p> Signup and view all the answers

    What distinguishes a blanket mortgage from other types of mortgages?

    <p>It covers multiple properties as collateral</p> Signup and view all the answers

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

    <p>Compound interest allows interest to be earned on previously earned interest</p> 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?

    <p>Personal loan</p> Signup and view all the answers

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

    <p>Any claim against a property affecting its transferability and use</p> Signup and view all the answers

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

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

    What distinguishes a legal mortgage from a conventional mortgage?

    <p>It is registered with the local land registry</p> Signup and view all the answers

    What is the primary characteristic of a closed mortgage?

    <p>It restricts prepayment or renegotiation of terms before maturity</p> 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.

    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.

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    Description

    Test your knowledge of different types and uses of loans and mortgages with this informative quiz. Learn about secured and unsecured loans, mortgage types, repayment periods, and more.

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