Free Practice Quiz Question List

4 Mortgages and Real Estate Finance Online Quiz Questions

Use this free practice quiz with 20 questions to review 4 Mortgages and Real Estate Finance, test your knowledge, and prepare for your next test or exam.

20 questions

True or false

1 point

A homeowner has a fixed-rate mortgage. Even if the scheduled principal-and-interest payment stays the same, the homeowner's total housing payment could change because property taxes or insurance costs change.

A
True
B
False

Fill in the blank

1 point

For a fully amortizing fixed-rate mortgage, the outstanding balance is higher early in the repayment schedule. As a result, a larger share of an early payment goes to than of a later payment.

Choose one

1 point

A buyer is considering a loan insured by the Federal Housing Administration. Which description correctly identifies this loan?

A
It is a conventional loan because FHA loans are made directly by the Federal Housing Administration.
B
It is an FHA-insured loan; FHA insures the loan rather than making it directly.
C
It is a VA-guaranteed loan because all government-backed loans are guaranteed by the VA.
D
It is a USDA loan because any loan insured by a federal agency is part of the USDA program.

True or false

1 point

An investor uses borrowed funds to buy an income-producing property. If the property's income or value declines, leverage can magnify the investor's losses, while required loan payments remain due.

A
True
B
False

Written response

1 point

What three-letter measure incorporates a mortgage's interest rate and certain loan charges, such as points and some fees?

Written response

1 point

A property is worth $240,000, and the loan secured by it is $180,000. Using $\text{LTV}=\frac{\text{loan amount}}{\text{property value}}$ , what is the loan-to-value ratio? Enter the percentage value without the % sign.

Choose all

1 point

An adjustable-rate mortgage has reached the end of its fixed introductory-rate period. Select all the loan features that typically determine how its rate adjusts.

A
The loan's index
B
The loan's margin
C
The adjustment schedule
D
The loan's rate caps
E
The property's original purchase price

Fill in the blank

1 point

An income-producing property has net operating income of $120,000 and annual debt service of $100,000. Using $\text{DSCR}=\frac{\text{NOI}}{\text{annual debt service}}$ , calculate the debt-service coverage ratio as a decimal:

Choose one

1 point

A borrower wants to identify a loan that may require a large final payment after a shorter payment period, when the balance has not been fully amortized. Which loan structure fits this description?

A
An interest-only loan, because all such loans require full repayment in one final payment.
B
A fixed-rate mortgage, because its scheduled payment increases at the end of the term.
C
A balloon loan, because it may leave a large balance due after a shorter payment period.
D
A construction loan, because every construction loan requires a large final payment.

Choose all

1 point

A borrower is comparing mortgage offers. Select all practices that support a meaningful comparison of the offers.

A
Compare offers using the same loan amount, term, rate type, and points or credits.
B
Review each Loan Estimate for projected payments, estimated closing costs, and possible rate or payment changes.
C
Choose the offer with the lowest advertised interest rate without reviewing other terms.
D
Assume an APR fully predicts the future cost of any adjustable-rate mortgage.

Choose one

1 point

Which description best fits a construction loan used to finance a major renovation?

A
A loan that finances only a completed property's purchase, with the full amount advanced at closing.
B
A loan that finances building or major renovation, often advancing funds in stages and sometimes later being paid off or converted.
C
A loan whose interest rate and scheduled payment must change whenever a construction project reaches a new stage.
D
A loan that can be used only for renovation and must always end with a balloon payment.

Choose one

1 point

A property has a first mortgage and a later-recorded second mortgage. In many foreclosure situations, what is the typical payment priority of the second-mortgage lender?

A
The second mortgage is paid before the first mortgage because it is a newer loan.
B
The second mortgage has the same priority as the first mortgage in every foreclosure.
C
The second mortgage is a junior lien and is generally paid after the senior lender from foreclosure proceeds.
D
The second mortgage is unsecured and therefore cannot be paid from foreclosure proceeds.

Choose one

1 point

A borrower is considering paying an upfront charge to obtain a lower mortgage rate. Which statement correctly describes the tradeoff between discount points and lender credits?

A
Paying discount points may lower the interest rate, while lender credits reduce upfront costs in exchange for a higher rate.
B
Discount points reduce upfront costs in exchange for a higher rate, while lender credits guarantee a lower rate.
C
Both discount points and lender credits eliminate all loan fees and keep the rate unchanged.
D
Lender credits reduce the principal balance, while discount points pay the borrower's property taxes.

Open ended

1 point

A borrower values predictable payments but is also considering an adjustable-rate mortgage with a lower introductory rate. Compare how a fixed-rate mortgage and an ARM can behave over time, and identify a key affordability question the borrower should consider before choosing the ARM.

Choose one

1 point

A homeowner has a fixed-rate mortgage. The local property tax bill increases, but the mortgage rate and loan terms do not change. What is the most likely effect?

A
The total housing payment must remain unchanged because the mortgage rate is fixed.
B
The total housing payment may rise even though the scheduled principal-and-interest payment stays the same.
C
The scheduled principal-and-interest payment must rise by the same amount as the property taxes.
D
The lender must reduce the loan principal to offset the higher taxes.

True or false

1 point

A borrower makes every scheduled payment during the interest-only period of a mortgage. During that period, those payments do not reduce the loan principal.

A
True
B
False

Choose one

1 point

A borrower is financing a major renovation, and the lender releases funds as work progresses. Which loan structure best fits this arrangement?

A
The lender advances the full loan amount only after the completed property is sold.
B
The borrower makes interest-only payments for the entire life of every construction loan.
C
The lender may advance funds in stages as construction or renovation work progresses.
D
The loan is automatically guaranteed by a federal housing program.

Choose one

1 point

A property has a first mortgage and a later-recorded home-equity loan. If foreclosure proceeds are distributed in the usual lien-priority order, which statement best describes the home-equity lender's position?

A
The junior lender is paid before the first-mortgage lender because its loan was recorded later.
B
The junior lender is paid after the senior lender from foreclosure proceeds.
C
The junior lender has no security interest in the property.
D
The junior lien automatically becomes the first mortgage if the property value falls.

Written response

1 point

A property is valued at $\$400{,}000$ , and the loan secured by it is $\$300{,}000$ . What is the loan-to-value ratio? Give your answer as a percentage value in percentage points (for example, enter 75 for 75%), not as a decimal.

Written response

1 point

An income-producing property has annual net operating income of $\$120{,}000$ and annual debt service of $\$100{,}000$ . What is its debt-service coverage ratio (DSCR)? Enter the ratio as a number.