Wisconsin Real Estate License Property Valuation and Financing 3 — Questions and Answers
Question 1: A mortgage in which each payment covers both principal and interest, fully repaying the loan by the end, is called:
- An amortized loan (Correct answer)
- A term loan
- A balloon loan
- An interest-only loan
Correct answer: An amortized loan
An amortized loan pays off both principal and interest gradually so the balance is zero at maturity.
Question 2: In a mortgage, which party is the borrower who pledges the property as security?
- Mortgagor (Correct answer)
- Mortgagee
- Trustee
- Beneficiary
Correct answer: Mortgagor
The mortgagor is the borrower who gives the mortgage as security to the lender (mortgagee).
Question 3: What type of loan has an interest rate that changes periodically based on an index?
- Adjustable-rate mortgage (Correct answer)
- Fixed-rate mortgage
- Fully amortized fixed loan
- Purchase-money mortgage
Correct answer: Adjustable-rate mortgage
An adjustable-rate mortgage (ARM) has a rate that adjusts periodically according to a market index.
Question 4: A clause allowing the lender to demand full payment if the property is sold is known as a:
- Due-on-sale (alienation) clause (Correct answer)
- Acceleration clause
- Defeasance clause
- Prepayment clause
Correct answer: Due-on-sale (alienation) clause
A due-on-sale or alienation clause lets the lender call the loan due when the property is transferred.
Question 5: Which government-backed loan program requires no down payment for eligible veterans?
- VA loan (Correct answer)
- FHA loan
- Conventional loan
- USDA construction loan
Correct answer: VA loan
VA loans guaranteed by the Department of Veterans Affairs allow eligible veterans to buy with no down payment.
Question 6: Private mortgage insurance (PMI) is typically required on a conventional loan when the down payment is:
- Less than 20% (Correct answer)
- More than 20%
- Exactly 25%
- Any amount over 10%
Correct answer: Less than 20%
PMI is generally required when a borrower puts down less than 20% on a conventional loan.
Question 7: The ratio comparing a loan amount to the property's appraised value is the:
- Loan-to-value (LTV) ratio (Correct answer)
- Debt-to-income ratio
- Capitalization rate
- Gross rent multiplier
Correct answer: Loan-to-value (LTV) ratio
The loan-to-value ratio measures the loan amount as a percentage of the property's value.
Wisconsin Real Estate License Property Valuation and Financing 3
A mortgage in which each payment covers both principal and interest, fully repaying the loan by the end, is called: