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Loan Payment Calculations Quiz

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Questions and Answers

In the compound interest formula A = P(1 + r/n)^nt, what does 'n' represent?

The annual interest rate

The future value of the investment

The number of times that interest is compounded per unit (correct)

The initial loan amount

When amortizing a loan, what is calculated in Month 1 using the given formula?

Future value of the loan

Principal amount borrowed

Interest portion of the payment (correct)

Total payments for the year

What type of mortgage loan has an interest rate that remains constant throughout the entire term of the loan?

Interest-only mortgage

Adjustable-rate mortgage

Fixed-rate mortgage (correct)

Variable-rate mortgage

Which type of mortgage provides predictability in payments but may have higher initial interest rates compared to adjustable-rate mortgages?

Fixed-rate mortgage Signup and view all the answers

What is the monthly principal and interest payment on a $100,000 loan at 10% for 30 years?

$877.57 Signup and view all the answers

What is a potential disadvantage of fixed-rate mortgages if interest rates decrease?

Potentially higher overall interest cost Signup and view all the answers

Which mortgage option requires refinancing to take advantage of falling interest rates?

Fixed-rate mortgage Signup and view all the answers

How is the Starter/Teaser Rate calculated for the 11th year?

Index + Margin - Discount Signup and view all the answers

What major development revolutionized loan repayment in the mortgage landscape before the establishment of the FHA mortgage insurance program?

Introduction of amortization Signup and view all the answers

Which feature characterized initial loans before the FHA and VA Loan Guarantee Programs?

Primarily interest-only Signup and view all the answers

What tool was introduced to match borrowers with suitable loan options effectively in the mortgage market?

Financial Calculator Signup and view all the answers

Which formula represents compound interest in loan calculations?

$A = P (1 + r/n)^nt$ Signup and view all the answers

Which method of calculating loans involves the 'Time Value of Money' concept?

Mortgage Payment Tables Signup and view all the answers

What is the purpose of the Periodic Adjustment Cap in an adjustable-rate mortgage (ARM)?

To limit the amount the interest rate can adjust from one adjustment to the next Signup and view all the answers

What is Negative Amortization in the context of a loan?

When the interest on a loan accrues faster than it is being repaid Signup and view all the answers

What does the Lifetime Cap regulate in an adjustable-rate mortgage (ARM)?

The maximum upward adjustment of the interest rate during the loan term Signup and view all the answers

In an ARM, what is the purpose of the Initial Adjustment Cap?

To limit how much the interest rate can adjust after the first adjustment Signup and view all the answers