RM 450 Exam 2 Review (updated)
questions well answered
1. The monthly mortgage payment divided by the loan amount is commonly referred to as the:
A. loan balance
B. effective borrowing cost
C. lender's yield
D. monthly loan constant - correct answer ✔✔D. monthly loan constant
2. From the borrower's perspective, the effective borrowing cost is often viewed as the implied internal
rate of return (IRR), since it takes into consideration costs that the borrower faces, but which are not
passed on as income to the lender. Included in this calculation are closing costs, which may consist of all
of the following EXCEPT:
A. Title insurance
B. Mortgage insurance
C. Recording fees
D. Earnest money - correct answer ✔✔D. Earnest money
3. Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to
the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following EXCEPT:
A. All finance charges in connection with the loan, such as discount points, origination fees, and
underwriting fees.
B. All compensation to the originating brokers if one was used by the borrower.
C. Any prepayment of principal to be made on the loan.
D. Premiums for required forms of insurance. - correct answer ✔✔C. Any prepayment of principal to be
made on the loan
4. When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the
loan's yield?
A. The yield on the loan will increase.
, B. The yield on the loan will decrease.
C. The yield on the loan will be unaffected.
D. The yield on the loan automatically becomes zero. - correct answer ✔✔A. The yield on the loan will
increase
5. For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses
associated with obtaining the mortgage should be included. With this in mind, which of the following
costs should not be included in one's calculation of EBC?
A. Discount points
B. Loan origination fees
C. Appraisal fee
D. Buyer's title insurance - correct answer ✔✔D. Buyer's title insurance
6. When fully amortizing loans call for equal periodic payments over the life of the loan they are known
as:
A. level-payment mortgages
B. adjustable-rate mortgages
C. interest-only mortgages
D. early-payment mortgages - correct answer ✔✔A. level-payment mortgages
7. While a variety of loan terms are available in a lender's mortgage menu, the most common loan term
on a level-payment mortgage is:
A. 7 years
B. 15 years
C. 30 years
D. 40 years - correct answer ✔✔C. 30 years
8. Recently, 15-year mortgages have increased in popularity amongst both borrowers and lenders. Which
of the following groups of borrowers would typically be the least interested in a 15-year mortgage?
A. Mature households with minimal financial constraints
B. First-time homebuyers
questions well answered
1. The monthly mortgage payment divided by the loan amount is commonly referred to as the:
A. loan balance
B. effective borrowing cost
C. lender's yield
D. monthly loan constant - correct answer ✔✔D. monthly loan constant
2. From the borrower's perspective, the effective borrowing cost is often viewed as the implied internal
rate of return (IRR), since it takes into consideration costs that the borrower faces, but which are not
passed on as income to the lender. Included in this calculation are closing costs, which may consist of all
of the following EXCEPT:
A. Title insurance
B. Mortgage insurance
C. Recording fees
D. Earnest money - correct answer ✔✔D. Earnest money
3. Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to
the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following EXCEPT:
A. All finance charges in connection with the loan, such as discount points, origination fees, and
underwriting fees.
B. All compensation to the originating brokers if one was used by the borrower.
C. Any prepayment of principal to be made on the loan.
D. Premiums for required forms of insurance. - correct answer ✔✔C. Any prepayment of principal to be
made on the loan
4. When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the
loan's yield?
A. The yield on the loan will increase.
, B. The yield on the loan will decrease.
C. The yield on the loan will be unaffected.
D. The yield on the loan automatically becomes zero. - correct answer ✔✔A. The yield on the loan will
increase
5. For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses
associated with obtaining the mortgage should be included. With this in mind, which of the following
costs should not be included in one's calculation of EBC?
A. Discount points
B. Loan origination fees
C. Appraisal fee
D. Buyer's title insurance - correct answer ✔✔D. Buyer's title insurance
6. When fully amortizing loans call for equal periodic payments over the life of the loan they are known
as:
A. level-payment mortgages
B. adjustable-rate mortgages
C. interest-only mortgages
D. early-payment mortgages - correct answer ✔✔A. level-payment mortgages
7. While a variety of loan terms are available in a lender's mortgage menu, the most common loan term
on a level-payment mortgage is:
A. 7 years
B. 15 years
C. 30 years
D. 40 years - correct answer ✔✔C. 30 years
8. Recently, 15-year mortgages have increased in popularity amongst both borrowers and lenders. Which
of the following groups of borrowers would typically be the least interested in a 15-year mortgage?
A. Mature households with minimal financial constraints
B. First-time homebuyers
