Chapter 10 Questions

1) During origination, the mortgage’s contract rate of interest equals the market rate of interest for the type of loan and loan risk. T pg.305

2) Common prepayment penalty take the form of a percentage from the mortgage balance.

F-pg.307

3) A prepayment penalty raises the lender’s effective yield. T-pg.307

4) The lenders effective yield when considering points is constant over the life of the loan. F-is not constant pg.-311

5) It’s always a good idea to pay points when you plan to keep your loan for 15 years. T- you don’t want to pay points unless you’re keep in the loan for over 5 years.pg.313

6) The contract interest rate on an ARM is composed of

a) Effective yield and margin

b) Relative return and index

c) Index and margin pg. 316

d) None of the above

7) A DSCR greater than 1.20 is considered to be

a) Extra NOI that provides a cushion –pg. 318

b) Riskiness of NOI

c) Both A and B

d) Neither of the above

8) The most critical period in which is evaluated during a credit check procedure is

a) The past two years- pg.322

b) The past five years

c) The past seven

d) The past eight and a half