FIN 301: Mortgage and Loan Quiz - Financial Analysis Problems

This assignment is a finance quiz that tests understanding of mortgage and loan concepts. The quiz includes questions on calculating effective annual interest rates, return on investment from refinancing, loan valuation, incremental borrowing costs, and market value of loans. It also covers topics like conforming loans, payment-to-income ratios, lender protection, debt coverage ratios, and loan refinance decision processes. The quiz is designed to assess comprehension of financial calculations, loan terms, and the impact of interest rates on investment decisions related to real estate and lending. The solutions provided offer a comprehensive understanding of the concepts and calculations involved in mortgage and loan analysis.

Question 1
A house is for sale for $250,000. You have a choice of two 20-year mortgage
loans with monthly payments: (1) if you make a down payment of $25,000,
you can obtain a loan with a 6% rate of interest or (2) if you make a down
payment of $50,000, you can obtain a loan with a 5% rate of interest. What
is the effective annual rate of interest on the additional $25,000 borrowed on
the first loan?
Group of answer choices
1.00%
6.00%
12.95%
18.67%
Question 2
A borrower has secured a 30 year, $150,000 loan at 7% with monthly
payments. Fifteen years later, the borrower has the opportunity to refinance
with a fifteen year mortgage at 6%. However, the up front fees, which will be
paid in cash, are $2,500. What is the return on investment if the borrower
expects to remain in the home for the next fifteen years?
Group of answer choices
6.00%
13.00%
22.62%
28.89%
Question 3
A borrower has secured a 30 year, $150,000 loan at 7% with monthly
payments. Fifteen years later, an investor wants to purchase the loan from
the lender. If market interest rates are 5%, what would the investor be
willing to pay for the loan?
Group of answer choices
$75,000.00
$111,028.00

$126,196.48
$168,646.00
Question 4
A borrower is purchasing a property for $180,000 and can choose between
two possible loan alternatives. The first is a 90% loan for 25 years at 9%
interest and 1 point and the second is a 95% loan for 25 years at 9.25%
interest and 1 point. Assuming the loan will be held to maturity, what is the
incremental cost of borrowing the extra money?
Group of answer choices
13.66%
13.50%
14.34%
12.01%
Question 5
The market value of a loan is:
Group of answer choices
The loan balance times one minus the market rate
The loan balance times one minus the original rate
The future value of the remaining payments
The present value of the remaining payments
Question 6
A conforming loan
Group of answer choices
Exceeds the loan limits of loans that Fannie Mae and Freddie Mac can buy
Meets loan limits of loans that Fannie Mae and Freddie Mac can buy

Cannot be purchased by GSEs such as Fannie Mae and Freddie Mac
Is another term for a fixed-rate mortgage loan
Question 7
Payment to income ratio is BEST described as
Group of answer choices
The factor used to determine if interest on mortgage loans is tax deductible
The only measure of a borrower's ability to fulfill his or her loan obligations
The ratio of the estimated rental income to the expected payments on a
rental property
The ratio of the expected payments on a property to the income of the
borrower
Question 8
Which of the following organizations provides lenders with complete
protection against default losses:
Group of answer choices
FHA
FNMA
FHLMC
VA
Question 9
A lender requires a 1.20 debt coverage ratio as a minimum. If the net
operating income of a property is $60,000, what is the maximum amount of
debt service the lender would allow?
Group of answer choices
$30,000
$50,000

$60,000
$72,000
Question 10
Which of the following is an important aspect of the loan refinance decision
process?
Group of answer choices
Terms associated with the existing loan
Terms of the new loan
Fees associated with paying off the old loan and/or acquiring the new loan
All of the above