Principles Of Real Estate Finance! Trivia Quiz

1. A mortgage is provided by lenders who charge interest for the use of the borrowed money to make a profit. The loan amount is known as the "principal".

True

False

A mortgage is a loan provided by lenders, and they charge interest on the borrowed money to make a profit. The loan amount, which is the money borrowed, is referred to as the "principal." This statement is true because lenders do charge interest on mortgages to earn a profit, and the borrowed amount is indeed called the principal.

Explanation

A mortgage is a loan provided by lenders, and they charge interest on the borrowed money to make a profit. The loan amount, which is the money borrowed, is referred to as the "principal." This statement is true because lenders do charge interest on mortgages to earn a profit, and the borrowed amount is indeed called the principal.

2. The mortgage represents a portion of the total value of the real estate that is expressed by the financial phrase "loan to value ratio" (the relationship between the loan and the value of the property).

True

False

The explanation for the given correct answer is that the mortgage does represent a portion of the total value of the real estate, which is expressed by the loan to value ratio. This ratio shows the relationship between the loan amount and the value of the property. Therefore, it is true that the mortgage represents a portion of the total value of the real estate.

Explanation

The explanation for the given correct answer is that the mortgage does represent a portion of the total value of the real estate, which is expressed by the loan to value ratio. This ratio shows the relationship between the loan amount and the value of the property. Therefore, it is true that the mortgage represents a portion of the total value of the real estate.

3. The document used to secure payment of the loan to buy a property is called a mortgage.

True

False

A mortgage is a legal document that is used to secure payment of a loan that is taken out to purchase a property. This document serves as a guarantee to the lender that the borrower will repay the loan amount, and if the borrower fails to do so, the lender has the right to take possession of the property. Therefore, the statement that the document used to secure payment of the loan to buy a property is called a mortgage is true.

Explanation

A mortgage is a legal document that is used to secure payment of a loan that is taken out to purchase a property. This document serves as a guarantee to the lender that the borrower will repay the loan amount, and if the borrower fails to do so, the lender has the right to take possession of the property. Therefore, the statement that the document used to secure payment of the loan to buy a property is called a mortgage is true.

4. The mortgage origination fee is a fee to originate or obtain the mortgage. It is often referred to as "points". In real estate, the word "point" means percent.

True

False

The statement is true because the mortgage origination fee is indeed a fee that is charged to cover the costs of originating or obtaining a mortgage. It is commonly referred to as "points" in the real estate industry, and the term "point" represents a percentage.

Explanation

The statement is true because the mortgage origination fee is indeed a fee that is charged to cover the costs of originating or obtaining a mortgage. It is commonly referred to as "points" in the real estate industry, and the term "point" represents a percentage.

5. All of the direct lenders that are available in the marketplace are collectively referred to as the primary mortgage market.

True

False

The statement states that all direct lenders in the marketplace are collectively referred to as the primary mortgage market. This means that the primary mortgage market includes all the direct lenders available in the marketplace. Therefore, the statement is true.

Explanation

The statement states that all direct lenders in the marketplace are collectively referred to as the primary mortgage market. This means that the primary mortgage market includes all the direct lenders available in the marketplace. Therefore, the statement is true.

6. Pledging of real property as collateral security while the borrower still retains possession and use of the property are called hypothecation. It is done as a precaution so that in the event the borrower fails to perform on the contract, such as the failure to make the mortgage loan payments on schedule the lender can institute a legal procedure known as a foreclosure to recover the balance of borrowed money.

True

False

Hypothecation refers to the practice of pledging real property as collateral while the borrower still retains possession and use of the property. This is done as a precautionary measure in case the borrower fails to fulfill their contractual obligations, such as making mortgage loan payments on time. In such cases, the lender can initiate a legal procedure called foreclosure to recover the remaining borrowed money. Therefore, the statement is true.

Explanation

Hypothecation refers to the practice of pledging real property as collateral while the borrower still retains possession and use of the property. This is done as a precautionary measure in case the borrower fails to fulfill their contractual obligations, such as making mortgage loan payments on time. In such cases, the lender can initiate a legal procedure called foreclosure to recover the remaining borrowed money. Therefore, the statement is true.

7. The mortgage application fee is a fee that is paid by the seller and is usually paid at settlement. The fee is refundable if a mortgage cannot be obtained.

True

False

The mortgage application fee is paid by the borrower at the time of mortgage application and is usually non-refundable.

Explanation

The mortgage application fee is paid by the borrower at the time of mortgage application and is usually non-refundable.

8. An "amortized mortgage"is one in which regular payments consist only of interest. The loan principal is required to be paid at the end of a term loan in a large lump sum payment.

True

False

The above is a description of a balloon mortgage. An amortized mortgage is one in which the regular periodic, payments have a portion of each payment that is first applied to pay the loan interest. The remaining portion of the loan payment is then used to reduce the loan amount known as the principal.

Explanation

The above is a description of a balloon mortgage. An amortized mortgage is one in which the regular periodic, payments have a portion of each payment that is first applied to pay the loan interest. The remaining portion of the loan payment is then used to reduce the loan amount known as the principal.

9. The change in the type of mortgage financing from term loans to amortized mortgages caused by the Great Depression contributed to a significant increase in real property ownership in the United States. Today, government statistics indicate that more than two-thirds of the population of the United States live in dwellings that are owned by the inhabitants, as opposed to renting.

True

False

The change in mortgage financing from term loans to amortized mortgages during the Great Depression led to an increase in real property ownership in the United States. This shift allowed more people to afford homes and led to a significant increase in the number of people who own their dwellings rather than renting. Government statistics today confirm that over two-thirds of the population in the United States are homeowners. Therefore, the statement "True" is correct.

Explanation

The change in mortgage financing from term loans to amortized mortgages during the Great Depression led to an increase in real property ownership in the United States. This shift allowed more people to afford homes and led to a significant increase in the number of people who own their dwellings rather than renting. Government statistics today confirm that over two-thirds of the population in the United States are homeowners. Therefore, the statement "True" is correct.

10. Charging an excessively high rate of interest is known as gouging the buyer.

True

False

This practice is known as "usury" and is illegal on some kinds of loans; however, there is no usury limit on most mortgage loans with the exception of some private lenders.

Explanation

This practice is known as "usury" and is illegal on some kinds of loans; however, there is no usury limit on most mortgage loans with the exception of some private lenders.

11. Before the Great Depression of 1929-1939, it was possible to buy a house in the United States with as little as 5% down.

True

False

Down payments of 40%-50% were common before the Great Depression.

Explanation

Down payments of 40%-50% were common before the Great Depression.

12. The "alienation provision" in the mortgage indicates that if the real property on which the loan exists is sold, the borrower is required to pay off any remaining mortgage debt in full. FHA and VA mortgages always include this provision.

True

False

The alienation provision is not used on FHA and VA mortgages as they allow their mortgages to be assumed.

Explanation

The alienation provision is not used on FHA and VA mortgages as they allow their mortgages to be assumed.

13. The most dominant buyer of mortgages from the primary mortgage market is the Federal National Mortgage Association, known commonly in financial markets as Freddie Mac.

True

False

The Federal National Mortgage Association is known as FANNIE MAE and is the most dominant buyer of mortgages from the primary mortgage market.

Explanation

The Federal National Mortgage Association is known as FANNIE MAE and is the most dominant buyer of mortgages from the primary mortgage market.

14. The legal document through which a loan is obtained to purchase real property is called a mortgage.

True

False

It is called a Note.

Explanation

It is called a Note.

15. Lenders require "private mortgage insurance" to provide insurance coverage for the amount of any unpaid mortgage balance if it is ever discovered there is a defective title of the real property owner. The policy is paid by the borrower but is issued to the lender as their beneficiary.

True

False

Lenders require a "title insurance policy" to provide insurance coverage for the amount of any unpaid mortgage balance if it is ever discovered that there is a defective title of the real property owner.

Explanation

Lenders require a "title insurance policy" to provide insurance coverage for the amount of any unpaid mortgage balance if it is ever discovered that there is a defective title of the real property owner.