Math Flashcards
(6 cards)
Question : What is the maximum annual change possible in the rate of a 1-Year ARM, with 2% / 6% caps, in its third year if the index increases by 3 percentage points?
A. The maximum rate change is 2% from the previous year’s rate
B. The maximum rate change is 5% from the previous year’s rate
C. The rate will not change because the margin stays fixed
D. There is not enough information to answer this question
Answer : The maximum rate change is 2% from the previous year’s rate
Explanation : The 2% / 6% caps limit the annual rate change to 2% from the previous year, so long as the rate has not changed more than 6% in its lifetime—which it would not have in the third year
A borrower is closing on a home on April 14. The estimated annual property taxes are $3,883.33. What amount should show on his HUD-1?
A. $1,095.85 credit to borrower
B. $3,129.66 credit to borrower
C. $1,117.13 expense to borrower
D. $1,201.33 expense to borrower
Answer : $1,095.85 credit to borrower
Explanation : The seller occupied the home for 103 days (31+28+31+13), and the per diem property taxes are $3,883.33 / 365=$10.6393. Therefore, the borrower will receive a credit for $1,095.85 (103 days X $10.6393)
Which of the following formulas would apply for calculating cost of discount points?
A. Loan Amount x Origination Points (as a %) = Discount points in %
B. Loan Amount x Discount Points (as a %) = Cost of discount points
C. Loan Amount X Back end % = Cost of discount points
D. Loan Amount x PITI = Cost of discount points
Loan Amount x Discount Points (as a %) = Cost of discount points
A borrower is closing on a $340,000 loan at 5.5% on March 17. What is his prepaid interest expense?
A. $3,121.11
B. $717.26
C. $768.49
D. $1,281.73
Answer : $768.49
Explanation : $340,000 X 5.5% / 365 = $51.2329 per diem. He owes for 15 days in March (31-16). Therefore, his prepaid interest will be 15 X $51.2329 = $768.49
Question : A 1-Year ARM has a starting rate of 3.75% with an initial index of 2.25% and margin of 2.5%. It has caps of 2% / 6%. After two periodic adjustments, and modest inflation, what is the maximum interest rate possible?
Answer : 7.75%
Explanation : Since the caps are 2% / 6% and there have only been two adjustments, the maximum possible interest rate would be 7.75% (3.75% + 2% + 2%)
Question : If a borrower has $37,500 available for a down payment, and wants to avoid buying mortgage insurance, so the LTV needs to be at 80% or less, how much house can they afford?
Answer : $187,500
Explanation : A $37,500 down payment that equals 20% of the purchase price would purchase a home worth $187,500. (Divide 37500/20%)
