Arizona Real Estate License Real Estate Financing Concepts 2

Question 1

In a fully amortized loan, what happens to the interest portion of each payment over the life of the loan?

Accepted Answer

It decreases as the principal balance declines

Answer

As principal is paid down, less interest accrues, so the interest portion of each fixed payment shrinks while the principal portion grows.

Question 2

A loan that requires a large final payment because it is not fully amortized is called a:

Accepted Answer

Balloon loan

Answer

A balloon loan has payments that do not fully retire the debt, leaving a large lump-sum balloon payment due at the end.

Question 3

What is the primary purpose of a promissory note in a real estate transaction?

Accepted Answer

It is the borrower's written promise to repay the debt

Answer

The promissory note is the borrower's personal promise to repay the loan and serves as the evidence of the debt.

Question 4

In Arizona, which security instrument is most commonly used to secure real estate loans?

Accepted Answer

Deed of trust

Answer

Arizona is a deed of trust state, using a trustee to hold title as security and allowing non-judicial foreclosure.

Question 5

A buyer assumes an existing loan 'subject to' the mortgage. Who remains primarily liable for the debt?

Accepted Answer

The original borrower (seller)

Answer

Taking title 'subject to' means the buyer is not personally liable and the original borrower remains responsible for the debt.

Arizona Real Estate License Practice Test