RE 611 Real Estate Finance – Comprehensive
Final Exam Practice
EXAM OVERVIEW
RE 611/FIN 611 covers the institutions and instruments used to finance
residential and commercial properties, providing essential knowledge for
careers in commercial banking, mortgage banking, and mortgage-related
securities . Key topics include fixed-rate and alternative mortgage
instruments, financial analysis and decision-making, residential mortgage
underwriting, mortgage market regulations, primary and secondary
mortgage market structure, and mortgage-backed securities .
Key Formulas to Know
Concept Formula
Loan-to-Value (LTV) Loan Amount ÷ Property Value
Debt Coverage Ratio (DCR) NOI ÷ Annual Debt Service
Cap Rate NOI ÷ Property Value
Cash-on-Cash Return Before-Tax Cash Flow ÷ Equity
Payment (CPM) PMT = PV × [i(1+i)^n] ÷ [(1+i)^n - 1]
SECTION 1: Mortgage Instruments & Legal Concepts (Questions 1-20)
Q1. Technically speaking, a "mortgage" is not a loan, but rather:
• A) A promissory note
• B) The pledge of real property as collateral for a loan
• C) A deed transferring title
• D) An insurance policy
,Answer: B – A mortgage is the security instrument that pledges real
property as collateral for a loan. The promissory note is the actual debt
obligation. The mortgage creates a lien on the property .
Q2. The borrower in a mortgage is called the:
• A) Mortgagee
• B) Beneficiary
• C) Mortgagor
• D) Trustee
Answer: C – The mortgagor is the borrower who gives the mortgage as
security. The mortgagee is the lender. In a deed of trust, the trustor is the
borrower and the trustee holds title .
Q3. Zach recently purchased a property "subject to" an existing
mortgage. As a result, he is:
• A) Personally liable for repaying the loan
• B) Not personally liable for repaying the loan
• C) Required to refinance immediately
• D) Automatically assumed the loan
Answer: B – When purchasing "subject to" an existing mortgage, the buyer
takes title but does not assume personal liability for the debt. The original
borrower remains liable. If the buyer assumes the loan, they sign the note
and become personally liable .
Q4. The "tilt effect" in fixed-rate mortgages refers to:
• A) The impact of unexpected inflation on payments
• B) The impact of expected inflation on the value of monthly
payments
, • C) The impact of caps on adjustable-rate mortgages
• D) The impact of payment caps on adjustable-rate mortgages
Answer: B – The tilt effect describes how expected inflation causes the real
value of fixed mortgage payments to decline over time. This transfers
wealth from lenders to borrowers during inflationary periods .
Q5. The Truth in Lending Act (Regulation Z) gives a home mortgage
borrower how many days to rescind a mortgage loan?
• A) 1 day
• B) 3 days
• C) 5 days
• D) 7 days
Answer: B – Regulation Z provides a 3-day right of rescission for certain
mortgage loans (refinancing and home equity loans). Purchase money
mortgages are exempt .
Q6. Which element of an adjustable-rate mortgage remains constant
over the life of the loan?
• A) Index
• B) Margin
• C) Interest rate
• D) Caps
Answer: B – The margin is the fixed amount added to the index to determine
the fully indexed rate. The index fluctuates; the margin remains constant .
Q7. A partially amortizing loan always will have:
• A) A balloon payment
, • B) No interest
• C) Negative amortization
• D) An adjustable rate
Answer: A – A partially amortizing loan does not fully amortize over the loan
term, resulting in a balloon payment at maturity .
Q8. Which aspect of a mortgage loan will be addressed in the note
rather than in the mortgage?
• A) Escrows
• B) Prepayment penalty
• C) Acceleration clause
• D) Due-on-sale clause
Answer: B – The note contains the borrower's promise to repay and terms
including prepayment penalties. The mortgage addresses security
provisions .
Q9. In what type of loan security arrangement is the deed held by a
neutral party and returned upon payment in full?
• A) Mortgage
• B) Deed of trust
• C) Contract for deed
• D) Land contract
Answer: B – In a deed of trust, the trustee holds title as security. When the
loan is paid off, the trustee reconveys title to the borrower .
Q10. A lender may reserve the right to require prepayment of a loan at
any time through a:
Final Exam Practice
EXAM OVERVIEW
RE 611/FIN 611 covers the institutions and instruments used to finance
residential and commercial properties, providing essential knowledge for
careers in commercial banking, mortgage banking, and mortgage-related
securities . Key topics include fixed-rate and alternative mortgage
instruments, financial analysis and decision-making, residential mortgage
underwriting, mortgage market regulations, primary and secondary
mortgage market structure, and mortgage-backed securities .
Key Formulas to Know
Concept Formula
Loan-to-Value (LTV) Loan Amount ÷ Property Value
Debt Coverage Ratio (DCR) NOI ÷ Annual Debt Service
Cap Rate NOI ÷ Property Value
Cash-on-Cash Return Before-Tax Cash Flow ÷ Equity
Payment (CPM) PMT = PV × [i(1+i)^n] ÷ [(1+i)^n - 1]
SECTION 1: Mortgage Instruments & Legal Concepts (Questions 1-20)
Q1. Technically speaking, a "mortgage" is not a loan, but rather:
• A) A promissory note
• B) The pledge of real property as collateral for a loan
• C) A deed transferring title
• D) An insurance policy
,Answer: B – A mortgage is the security instrument that pledges real
property as collateral for a loan. The promissory note is the actual debt
obligation. The mortgage creates a lien on the property .
Q2. The borrower in a mortgage is called the:
• A) Mortgagee
• B) Beneficiary
• C) Mortgagor
• D) Trustee
Answer: C – The mortgagor is the borrower who gives the mortgage as
security. The mortgagee is the lender. In a deed of trust, the trustor is the
borrower and the trustee holds title .
Q3. Zach recently purchased a property "subject to" an existing
mortgage. As a result, he is:
• A) Personally liable for repaying the loan
• B) Not personally liable for repaying the loan
• C) Required to refinance immediately
• D) Automatically assumed the loan
Answer: B – When purchasing "subject to" an existing mortgage, the buyer
takes title but does not assume personal liability for the debt. The original
borrower remains liable. If the buyer assumes the loan, they sign the note
and become personally liable .
Q4. The "tilt effect" in fixed-rate mortgages refers to:
• A) The impact of unexpected inflation on payments
• B) The impact of expected inflation on the value of monthly
payments
, • C) The impact of caps on adjustable-rate mortgages
• D) The impact of payment caps on adjustable-rate mortgages
Answer: B – The tilt effect describes how expected inflation causes the real
value of fixed mortgage payments to decline over time. This transfers
wealth from lenders to borrowers during inflationary periods .
Q5. The Truth in Lending Act (Regulation Z) gives a home mortgage
borrower how many days to rescind a mortgage loan?
• A) 1 day
• B) 3 days
• C) 5 days
• D) 7 days
Answer: B – Regulation Z provides a 3-day right of rescission for certain
mortgage loans (refinancing and home equity loans). Purchase money
mortgages are exempt .
Q6. Which element of an adjustable-rate mortgage remains constant
over the life of the loan?
• A) Index
• B) Margin
• C) Interest rate
• D) Caps
Answer: B – The margin is the fixed amount added to the index to determine
the fully indexed rate. The index fluctuates; the margin remains constant .
Q7. A partially amortizing loan always will have:
• A) A balloon payment
, • B) No interest
• C) Negative amortization
• D) An adjustable rate
Answer: A – A partially amortizing loan does not fully amortize over the loan
term, resulting in a balloon payment at maturity .
Q8. Which aspect of a mortgage loan will be addressed in the note
rather than in the mortgage?
• A) Escrows
• B) Prepayment penalty
• C) Acceleration clause
• D) Due-on-sale clause
Answer: B – The note contains the borrower's promise to repay and terms
including prepayment penalties. The mortgage addresses security
provisions .
Q9. In what type of loan security arrangement is the deed held by a
neutral party and returned upon payment in full?
• A) Mortgage
• B) Deed of trust
• C) Contract for deed
• D) Land contract
Answer: B – In a deed of trust, the trustee holds title as security. When the
loan is paid off, the trustee reconveys title to the borrower .
Q10. A lender may reserve the right to require prepayment of a loan at
any time through a:
