Chapter 2 Flashcards
A mortgage that is 80% ltv is called a:
Conventional mortgage
Which of the following in NOT one of the four typical purposes that mortgages are used for:
a. Purchase
b. Security
c. Equity take-outs
d. Refinance
Security
Regarding compounding frequencies for interest rates, what does ‘J12’ signify?
Select one:
a. Monthly
b. Bi-weekly
c. Annually
d. Semi-annually
Monthly
If a purchaser receives a 10% incentive of the home’s purchase price of $200,000, or $20,000 and their home value decreases to $150,000:
Select one:
a. their debt will be reduced by 50%
b. their repayment value will be 10% of the current value or $15,000.
c. they will still owe $20,000
d. their debt will be erased
Correct Answer: their repayment value will be 10% of the current value or $15,000.
Rationale: The home buyer’s incentive will reduce the amount owing based on the home’s value, while it will increase if the property appreciates in value.
Relevant section(s) of the textbook: 2.4 The Purposes of Using a Mortgage
The correct answer is: their repayment value will be 10% of the current value or $15,000.
When a borrower takes out a second mortgage or another debt against the property, such as a line of credit, this is known as:
Select one:
a. Bridge Financing
b. Purchase
c. Equity Take-Out (ETO)
d. Amortization
Correct Answer: Equity Take-Out (ETO) Rationale: Equity Take-Out (ETO) is when a borrower increases the size of their mortgage or takes out a second mortgage or another debt against the property, such as a line of credit. An ETO is most often used to consolidate higher interest rate debt such as credit cards. Relevant section(s) of the textbook: 2.4 The Purposes of Using a Mortgage
The correct answer is: Equity Take-Out (ETO)
Atif has taken out a another mortgage on his principal residence, while still keeping the mortgage he obtained when he purchased the house. This mortgage will be called a:
Select one:
a. First mortgage
b. Second mortgage
c. HELOC
d. Line of Credit
Correct Answer: Second mortgage
Rationale: Since Atif still has the mortgage that he used when he purchased the home, this mortgage is being registered next, or second, and is therefore referred to as a second mortgage.
Relevant section(s) of the textbook: 2.9 Mortgage Ranks
The correct answer is: Second mortgage
A characteristic of this type of mortgage is that it is registered at a higher ltv than the property is worth.
Select one:
a. Standard mortgage
b. HELOC
c. Collateral mortgage
d. High ratio mortgage
Collateral mortgage
Rationale: A collateral mortgage is typically registered up to 120% ltv, while a standard mortgage is registered at whatever the actual advance is, such as 90% ltv.
Relevant section(s) of the textbook: 2.3 What is a Collateral Mortgage?
The correct answer is: Collateral mortgage
Which of the following is NOT an obligation of a borrower who pledges his or her real property as security for a loan by placing a mortgage on that property?
Select one:
a. Repay the loan
b. Insure the property
c. Remodel the property
d. Maintain the property
Correct Answer: Remodel the property Rationale: Remodel the property is not one of the obligations of the borrower, whereas all other options are relevant, along with pay property taxes, not to commit waste, etc. Relevant section(s) of the textbook: 2.8 Borrower Covenants
The correct answer is: Remodel the property
This term is used when a person is buying a new home just before the sale of their current home completes, and they need the proceeds of the sale for their down payment.
Select one:
a. Bridge Financing
b. Equity Take-Out (ETO)
c. Amortization
d. Purchase
Correct Answer: Bridge Financing Rationale: Bridge Financing is used when a person is selling their current home and buying a new home. In some cases, a buyer may find that the home that is being sold has a closing date after the home that they are purchasing is set to close. This results in the homeowner temporarily owning two homes. Relevant section(s) of the textbook: 2.4 The Purposes of Using a Mortgage
The correct answer is: Bridge Financing
If you have two mortgages registered against your property and you decide to get another mortgage to pay off those first two, what would the rank be of this new mortgage?
Select one:
a. First mortgage
b. Second mortgage
c. HELOC
d. Line of Credit
Correct Answer: First mortgage
Rationale: Since you are paying off the other two mortgages they will be discharged and a new mortgage will be registered. Since there are no other active mortgages this will be a first mortgage.
Relevant section(s) of the textbook: 2.9 Mortgage Ranks
The correct answer is: First mortgage
