FINA 475 FINAL EXAM QUESTIONS AND
ANSWERS 100% PASS
Types of Residential Mortgage Loans - ANS 1. Lien status
2. Credit Classification
3. Interest Rate Type
4. Amortization Type
5. Credit Guarantees
6. Loan Balances
7. Prepayments and Prepayment penalties
Prepayment - ANS The amount of the payment made in excess of the monthly mortgage
payment
Another name for Partial Payment - ANS Curtailment
Partial Payment/Curtailment - ANS A type of prepayment in which the entire mortgage
balance is not paid off
-When a curtailment is made, the loan is not recast
-The borrower continues to make the same monthly mortgage payment
More common type of Prepayment - ANS One where the entire mortgage balance is paid off
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, "Due on sale" Clause - ANS Means that the remaining balance of the loan must be paid when
the house is sold
-All mortgage loads have this
Option - ANS The borrower's right to prepay a loan in whole or in part without a penality
Prepayment Penalty Mortgage - ANS A mortgage design that mitigates the borrower's right
to prepay
Principal investors in mortgage loans - ANS Thrifts and Commercial Banks
Four Risks investing in Residential Mortgage Loans - ANS 1. Credit Risk
2. Liquidity Risk
3. Price Risk
4. Prepayment Risk
Credit Risk - ANS The risk that the homeowner/borrower will default
LTV Ratio - ANS Provides a useful measure of the risk of loss of principal in case of default
Liquidity Risk - ANS Mortgage loans tend to be rather illiquid because they are large and
indivisible
Price Risk - ANS The price of a fixed-income instrument will move in an opposite direction
from market interest rates
-A rise in interest rates will decrease the price of a mortgage loan
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
ANSWERS 100% PASS
Types of Residential Mortgage Loans - ANS 1. Lien status
2. Credit Classification
3. Interest Rate Type
4. Amortization Type
5. Credit Guarantees
6. Loan Balances
7. Prepayments and Prepayment penalties
Prepayment - ANS The amount of the payment made in excess of the monthly mortgage
payment
Another name for Partial Payment - ANS Curtailment
Partial Payment/Curtailment - ANS A type of prepayment in which the entire mortgage
balance is not paid off
-When a curtailment is made, the loan is not recast
-The borrower continues to make the same monthly mortgage payment
More common type of Prepayment - ANS One where the entire mortgage balance is paid off
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, "Due on sale" Clause - ANS Means that the remaining balance of the loan must be paid when
the house is sold
-All mortgage loads have this
Option - ANS The borrower's right to prepay a loan in whole or in part without a penality
Prepayment Penalty Mortgage - ANS A mortgage design that mitigates the borrower's right
to prepay
Principal investors in mortgage loans - ANS Thrifts and Commercial Banks
Four Risks investing in Residential Mortgage Loans - ANS 1. Credit Risk
2. Liquidity Risk
3. Price Risk
4. Prepayment Risk
Credit Risk - ANS The risk that the homeowner/borrower will default
LTV Ratio - ANS Provides a useful measure of the risk of loss of principal in case of default
Liquidity Risk - ANS Mortgage loans tend to be rather illiquid because they are large and
indivisible
Price Risk - ANS The price of a fixed-income instrument will move in an opposite direction
from market interest rates
-A rise in interest rates will decrease the price of a mortgage loan
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
