Adjustable rate mortgages shift risk from the borrower to the lender True O False
With a fixed-rate mortgage (FRM), the ___________ bears the interest rate risk and with an Adjustable Rate Mortgage (ARM) the __________ bears the interest rate risk. A. borrower; lender B. lender; lender C. borrower; borrower D. lender; borrower
Question 14 Which of the following statements is true of adjustable-rate mortgages? There is no limit as the amount of payment change on an ARM. The interest rate changes on ARMs are limited per year and per lifetime. They cannot be converted to fixed-rate loans. They generally carry higher initial interest rates than conventional mortgages.
9. Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then infla- tion turns out to be higher than they both expected. a. Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower c. Inflation during the 1970s was much higher than most people had expected when the decade began. How did...
Imagine you work for an accounting firm and a client has told you he needs a loan of $120,000 to purchase a house. His monthly income is $4000, and he is single with no children. He has $14,000 in savings that can be used for a down payment. Based on this information, complete the following. • Find the current rates available from local banks for both fixed-rate mortgages and adjustable-rate mortgages (ARMs). • Analyze the offerings and summarize in writing the best...
How do adjustable rate mortgages work? What are the pros and cons of these types of mortgages?
The maker of a note is the borrower. O O True False
5. Probability relationships Aa Aa A mortgage is a loan that the borrower uses to finance the purchase of a home. There are two basic types of mortgage loans: the fixed-rate mortgage and the adjustable-rate mortgage (ARM). For the purposes of this problem, assume that all mortgages are either fixed-rate or adjustable-rate Apart from the classification of a mortgage as fixed-rate or adjustable-rate, conventional mortgage loans (loans that are not government-insured) are categorized as prime or subprime. A subprime mortgage...
1) Which of the following is not true for a 5/1 Adjustable Rate Mortgage (ARM). A) is a mortgage in which the rate is adjustable for 5 years B) in the sixth year, the loan becomes an ARM C) the new rate is determined by an economic index D) a predetermined margin is usually between 2.25-3.0% E) An adjustment interval is the period between potential rate changes 2) In A(n) _____ arrangement, the borrower may end up making payment to...
Which of the following statements is false regarding credit risk analysis? Multiple Choice A lender is protected against credit risks by a loan's covenant provisions since the interest rate is fixed by the Federal Reserve Bank. High-quality financial statements help a credit analyst to see the true performance at a company Greater default risk is determined to exist when there is significant organizational reliance on a certain individual or customer. o o An estimate of a firm's future financial condition...
A 30-year, $200,000 adjustable-rate mortgage starts out with the rate of 3.6%. The borrower makes only the required payments in the first three years. If after three years the rate resets to 4.5%, what is the new required payment?