Exam (elaborations)
REE 4204 Chapter 6 Quiz (1)
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- Chapter 5: Time Value Of Money
REE 4204 Chapter 6 Quiz (1)
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REE 4204 Chapter 6 QuizT or F: A reverse mortgage agreement always stipulates that the borrower receives a
series of monthly payments as a result of agreeing to deed the lender the property at
the end of the loan term. - ANS-False
T or F: In general, the longer the time between adjustments on an ARM, the greater the
interest rate risk assumed by the lender. - ANS-True
T or F: The basic purpose of the ARM is to allow lenders to adjust the nominal interest
rate periodically to reflect changes in the market rate. - ANS-True
T or F: The margin in an ARM contract will usually be adjusted several times over the
life of the mortgage. - ANS-False
T or F: The appeal of the PLAM over other mortgage alternatives is that it accounts for
inflation by adjusting the contract rate by the actual inflation rate and not the anticipated
rate. - ANS-False
T or F: A reverse mortgage is described as "rising debt, falling equity" because of the
accruing debt. - ANS-True
T or F: The adjustment amount to the loan balance in a PLAM is treated as
tax-deductible interest for the borrower. - ANS-False
T or F: The three-year ARM will usually use the one-year treasury bill index averaged
over the three-year period. - ANS-False
T or F: An increase in the margin on an ARM, other things being equal, will decrease
the value of the ARM to the lender. - ANS-False
T or F: One problem with the PLAM is that the balance of the loan may increase at a
faster rate than the value of the property. - ANS-True
T or F: A teaser rate offered on an ARM is any beginning rate less than the fully indexed
rate. - ANS-True
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