PSI Real Estate Financing 2

Question 1

A buyer obtains a loan where the interest rate adjusts periodically based on a market index. What type of loan is this?

Accepted Answer

Adjustable-rate mortgage (ARM)

Answer

An adjustable-rate mortgage (ARM) has an interest rate that changes at set intervals based on a specified market index.

Question 2

Which federal law requires lenders to disclose the Annual Percentage Rate (APR) to borrowers?

Accepted Answer

Truth in Lending Act (TILA)

Answer

The Truth in Lending Act (TILA) mandates that lenders disclose the APR and total cost of credit to borrowers.

Question 3

A homeowner borrows $50,000 using their home's equity as collateral to fund a renovation. This is best described as a:

Accepted Answer

Home equity loan

Answer

A home equity loan allows homeowners to borrow against the equity built up in their property.

Question 4

What is the primary purpose of private mortgage insurance (PMI)?

Accepted Answer

To protect the lender if the borrower defaults

Answer

PMI protects the lender — not the borrower — in the event the borrower defaults on the loan.

Question 5

A mortgage where the monthly payment does not fully amortize the loan over its term, resulting in a large final payment, is called a:

Accepted Answer

Balloon mortgage

Answer

A balloon mortgage has a large lump-sum payment due at the end of the loan term because monthly payments don't fully pay off the balance.

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