REAE 3325 EXAM 3 CH 9-11, 14 STUDY QUESTIONS AND ANSWERS 100% CORRECT
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Module
REAE 3325
Institution
REAE 3325
REAE 3325 EXAM 3 CH 9-11, 14 STUDY QUESTIONS AND ANSWERS 100% CORRECTREAE 3325 EXAM 3 CH 9-11, 14 STUDY QUESTIONS AND ANSWERS 100% CORRECTREAE 3325 EXAM 3 CH 9-11, 14 STUDY QUESTIONS AND ANSWERS 100% CORRECT
What are the four sources of index interest rates for use in adjustable interest rate? - A...
REAE 3325 EXAM 3 CH 9-11, 14 STUDY
QUESTIONS AND ANSWERS 100%
CORRECT
What are the four sources of index interest rates for use in adjustable interest rate? -
ANSWER-1. US Treasury Constant Maturity Rates
2. Thrift institutions Cost-of-Funds Index
3. LIBOR
4. Home mortgage rate index
Margin - ANSWER-The lender's markup to the adjustable rate.
What is the common margin rate? - ANSWER-Approximately 275 basis points (2.75%)
Rate caps? - ANSWER-A limit (or restriction) to any change on an ARM adjustable rate.
Periodic caps? - ANSWER-Caps that limit change in the interest from one change date
to the next.
Overall caps - ANSWER-Caps that limit change over the life of the loan.
Teaser rates. - ANSWER-The initial interest rate on an ARM if it is less than the index
rate plus margin at origination.
Payment caps - ANSWER-Limit on the mortgage payment as opposed to the interest
rate.
Negative Amortization - ANSWER-When the unpaid interest (due to a payment cap) is
added back to the loan balance which causes it to increase.
Balloon Payment - ANSWER-A large payment of principle due on the last scheduled
payment.
What two terms will a loan that is Not Fully Amortizing have? - ANSWER-1. Term for
amortization
2. Term to maturity
Exculpatory Clause - ANSWER-Negotiated in the note that releases the borrower from
liability for fulfillment of the contract.
Demand Clause - ANSWER-Right of lender to require prepayment. Common with
commercial loans, usually enforced if borrower's creditworthiness has deteriorated.
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