AnswersPersonal Finance - EL3403Mortgages and Home Ownership

Mortgages and Home Ownership — Unit test Answers

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1
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The table shows the terms of a fixed-rate mortgage.

Question illustration
A
M = P StartFraction Left-bracket R (1 minus R) Superscript n Baseline Right-bracket Over (1 + R) Superscript n Baseline EndFraction
Option A
B
M = P StartFraction Left-bracket R (1 + R) Superscript n Baseline Right-Bracket Over Left-bracket (1 + R) Superscript n Baseline minus 1 Right-bracket EndFraction
Option B
C
M = P StartFraction R Over left-bracket (1 + R) Superscript n Baseline minus 1 Right-bracket EndFraction
Option C
D
M = P StartFraction Left-bracket R (1 + R) Superscript n Baseline Right-Bracket Over (N + R) EndFraction
Option D
2
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A balloon payment mortgage makes the best sense for borrowers who are

A
fearful of taking risks when borrowing money.
B
planning on selling their homes before the term of the loan ends.
C
looking to avoid borrowing money from banks.
D
anticipating losing their jobs in the next few years.
3

What impact might an economic downturn have on a borrower’s fixed-rate mortgage?

A
It might cause a borrower’s payments to go up.
B
It might cause a borrower’s payments to go down.
C
It has no impact because a fixed-rate mortgage cannot change.
D
It has no impact because the economy does not affect interest rates.
4

If someone buys a home for $200,000 and makes a 20 percent down payment, that person will have to

A
pay $20,000 up front.
B
pay $40,000 up front.
C
take out a mortgage for $200,000.
D
take out a mortgage for $220,000.
5

[BLANK]

A
interest
B
fee
C
point
D
principal
6

The graph shows the average price of homes in the United States from 2009 to 2014.

Question illustration
A
The cost of a new home in the United States will continue to be inexpensive.
B
Rising home prices in recent years means that more people will need to take out mortgages.
C
More people will be able to pay cash for new homes and not need to take out a mortgage.
D
Based on recent trends, fewer people will need mortgages in the future.
7

A borrower with bad credit is likely to be charged

A
a low interest rate.
B
a high interest rate.
C
no interest rate.
D
higher property taxes.
8

What impact might an economic downturn have on a borrower’s fixed-rate mortgage?

A
It might cause a borrower’s payments to go up.
B
It might cause a borrower’s payments to go down.
C
It has no impact because a fixed-rate mortgage cannot change.
D
It has no impact because the economy does not affect interest rates.
9

What is the best reason for homebuyers to create a budget before taking out a mortgage?

A
to compare the value of their home with that of their neighbors
B
to plan how to pay off the money they have borrowed
C
to set aside enough money to refinance the loan
D
to figure out how long they can stay in their home
10

The chart shows the costs associated with the purchase of a new home.

Question illustration
A
cost of making repairs to the new home.
B
fees that must be paid to local schools.
C
costs associated with obtaining the loan.
D
fees assessed by the state or local government.
11

The chart shows the costs associated with the purchase of a new home.

Question illustration
A
It is too expensive for most people to buy a new home.
B
There are additional fees and costs involved in taking out a mortgage.
C
Making a down payment means taxes do not have to be paid.
D
Fees and taxes make up about 50 percent of the costs of buying a home.
12

The image and chart show the terms of a sample balloon payment mortgage.According to the terms of the sample balloon payment mortgage, what will most likely occur at the end of the regular payment term?

Question illustration
A
the remaining principal of $173,073 will be due immediately
B
the interest rate will change to decrease the monthly payment
C
the loan’s terms have all been met and it is paid in full
D
the monthly payments will increase due to an increase in principal
13

An adjustable-rate mortgage is one that

A
can change.
B
stays the same.
C
only goes up.
D
only goes down.
14

interestfeepointprincipal

A
interest
B
fee
C
point
D
principal
15

The graph shows the average price of homes in the United States from 2009 to 2014.

Question illustration
A
The cost of a new home in the United States will continue to be inexpensive.
B
Rising home prices in recent years means that more people will need to take out mortgages.
C
More people will be able to pay cash for new homes and not need to take out a mortgage.
D
Based on recent trends, fewer people will need mortgages in the future.
16

Which accurately describes the terms of this mortgage? Check all that apply.

A
The homeowner is borrowing $360,000.
B
The monthly interest rate is 4 percent.
C
Monthly payments must be made for 30 years.
D
The annual interest rate is 4.8 percent.
E
The homeowner is borrowing $200,000.
F
Monthly payments must be made for 360 years.
17

If someone buys a home for $200,000 and makes a 20 percent down payment, that person will have to

A
pay $20,000 up front.
B
pay $40,000 up front.
C
take out a mortgage for $200,000.
D
take out a mortgage for $220,000.
18

A balloon payment mortgage makes the best sense for borrowers who are

A
fearful of taking risks when borrowing money.
B
planning on selling their homes before the term of the loan ends.
C
looking to avoid borrowing money from banks.
D
anticipating losing their jobs in the next few years.
19

People most likely need to take out a mortgage when they

A
have bad credit.
B
are making a large purchase.
C
are spending less than $1,000.
D
have legal problems.
20

Many people prefer a fixed-rate mortgage because it

A
is variable.
B
might go down.
C
is predictable.
D
costs the least.

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