The rate of interest that is charged when there is an absence of an express agreement between the parties is known as:

a. Contract rate

b. 10 percent

c. Legal rate

d. Usury

c. Legal rate

It is known as the legal rate of interest. In Arizona the legal rate of interest is 10%.

A buyer who desires to reduce the contract interest rate on the 30-year promissory note from 8 3/8% to 8% per annum would pay:

a. 4 points

b. 2 points

c. 3 points

d. 5 points

c. 3 points

One discount point is equal to raising the yield for the lender on a 30 year loan by 1/8 of a percent. From the borrower’s point of view one discount point reduces the contract interest rate by 1/8 of a percent. In this question the borrower desires to reduce the contract interest rate by 3/8 of percent by paying 3 points at the time of loan funding.

Interest rates on Conventional, VA and FHA loans are:

a. Established by FDIC

b. Established by negotiation between the borrower and lender

c. Established by GNMA

d. Established by FNMA

b. Established by negotiation between the borrower and lender

\Interest rates for conventional, FHA and VA loans are established by negotiation between the borrower and the lender.

Normally, interest on home loans would be:

a. Increasing as the loan amortized

b. Accrued interest for the month preceding payment

c. Paid in advance for the coming month

d. An equal sum each month

b. Accrued interest for the month preceding payment

Interest on most home loans are paid in arrears meaning that the interest portion of a monthly payment is for the accrued interest for the past month. The interest portion of the level monthly payment changes each month and it generally decreases as the principal balance of the loan, which determines the interest amount, decreases.

All of the following can be impounded items EXCEPT:

a. Hazard insurance

b. Real property taxes

c. Broker’s commission

d. Property owner’s assessment

c. Broker’s commission

The broker’s commission is generally paid to the broker at the closed of escrow and it is not impounded. An impound account is established for a Budget Mortgage payment program and the monthly payment includes a pro-rata amount for the property taxes, special assessments and hazard insurance.

Liquidation of a financial obligation on an installment basis is

a. Compounding the interest

b. Acceleration

c. Amortization

d. Annuitization

c. Amortization

Amortization is the liquidation of a financial obligation on an installment basis.

Late payment penalties are ordinarily assessed:

a. For all payments not mailed by the due date

b. For payments more than 30 days late.

c. For all payments not received by the due date

d. For payments after the grace period

d. For payments after the grace period

Some lenders allow for a grace period and still others assess a late payment charge. This payment, usually a percentage of the payment, can be assessed the day after the due date or after the grace period. Most late payment penalties are assessed after the expiration of the grace period, which is often 15-days.

A mortgage note that is not on a fully amortized basis and therefore, requires a larger final payment is called:

a. Graduated mortgage

b. Flexible mortgage

c. Balloon mortgage

d. Open mortgage

c. Balloon mortgage

A balloon mortgage is a note secured by a mortgage or deed of trust that requires a balloon payment. A balloon payment is defined as the final installment payment on a note, greater than the preceding payments, which pays the note in full.

Interest of $142 is paid in an eight-month period on a $2,400 straight note. What is the interest rate?

a. Between 8% and 8 1/2%

b. Between 7 1/2 % and 8%

c. Between 9% and 9 1/2%

d. Between 8 1/2% and 9%

d. Between 8 1/2% and 9%

To calculate the interest rate you first calculate the annual interest. The interest for the eight- month period is converted to the annual amount by dividing the $142 of interest for the eight months by 8 and multiplying the answer by 12. The annual interest computed in this manner is $213. To calculate the interest rate divide the annual interest by the loan amount ($213 divided by $2,400). The answer is 8.875% which is between 8 1/2% and 9%.

A lender arranges a real estate loan of $8,400 with an interest rate of 11 percent per year. The interest is payable quarterly. If the principal is paid in one payment at the end of 15 months, what is the total principal and interest paid to the lender over the life of the loan?

a. $1,155

b. $8,631

c. $9,324

d. $9,555

d. $9,555

Fifteen months is the same as one and one quarter years, so the interest amount is computed by multiplying the loan amount times the interest rate times 1 .25. The interest amount calculated is $1, 155 ($8,400 times 11% times 1.25). The total amount of principal and interest paid to the lender is $9,555 ($8,400 plus the interest of $1,155).

The quarterly interest payment on a loan is $562.50 at a 7.5% annual rate. What is the principal amount?

a. $7,500

b. $90,000

c. $30,000

d. $75,000

c. $30,000

Compute the annual interest by multiplying the quarterly interest by 4. The calculated annual interest is $2,250 ($562.50 times 4). To calculate the loan balance, divide the annual interest by the interest rate of 7.5%. The loan balance as calculated is $30,000 ($2,250 divided by 7.5%).

The loan on a property is 85% of its appraised value. If the interest rate is 6 1/2% and the monthly interest payment is 718.25 what is the appraised value, what is the appraised value of the property?

a. $156,000

b. $132,600

c. $110,225

d. $219,785

a. $156,000

First calculate the annual interest which is $8,619 (718.25 times 12 months). To calculate the loan amount the annual interest is divided by the interest rate ($8,619 divided by 6 1/2 percent). The answer is a loan amount of $132,600. The loan is 85% of the appraised value. To calculate the appraised value divide the appraised value by the 85% ($132,600 divided by .85). The answer is $156,000.

A $45,000 straight loan at 7% interest was repaid in six months. What was the total amount repaid?

a. $48,150

b. $46,575

c. $1,575

d. $3,150

b. $46,575

First calculate the interest for the half year period by multiplying the loan amount by 7% and dividing the resulting annual interest by two. Interest for the one half year is $1,575 ($45,000 time 7% divided by 2). The total amount repaid equals the loan amount of $45,000 plus the interest for the one half year of $1,575.

In order to modernize her shop, Ms Jones borrowed $4,300 at 6.5% interest. If she repaid the principal and interest in one payment at the end of 8 months, what was the amount of the payment?

a. $4,463.03

b. $4,486.32

c. $4,509.61

d. $4,532.90

b. $4,486.32

The interest calculated for the eight month period is $186.32. The total payment is the interest of $186.32 added to the loan amount of $4,300 or $4,486.32.

What is one-half month’s interest on the unpaid balance of a mortgage of $20,000 at 6% simple interest?

a. $50.00

b. $54.20

c. $49.73

d. $60.00

a. $50.00

The calculation of the annual interest is computed by multiplying the loan balance by the annual rate of 6%. The annual interest is $1,200 ($20,000 times 6%). Interest for one half month is computed by dividing the annual interest rate by 24 (24 is used because there are 24 half month periods in a year). The answer is $50.