#1
What does the term 'amortization' refer to in the context of loans?
The process of obtaining a loan
The repayment of a loan over time
The interest rate on a loan
The initial amount borrowed
#2
In loan amortization, what does the term 'negative amortization' mean?
The decrease in the loan amount over time
The increase in the loan amount due to deferred interest
The absence of an amortization schedule
The cancellation of the loan
#3
What is the Debt-to-Income (DTI) ratio, and how is it relevant in the loan approval process?
It is the ratio of loan interest to monthly income, determining eligibility
It is the ratio of monthly debt payments to monthly income, influencing loan approval
It is the ratio of loan principal to the appraised value of the property
It is the ratio of loan origination fees to the loan amount
#4
What is the Loan Modification Program, and how does it impact borrowers?
A program to modify loan terms to make them more favorable for borrowers, potentially lowering interest rates or extending the loan term
A program to increase interest rates on existing loans to maximize profits for lenders
A program to cancel outstanding loans for borrowers with high credit scores
A program to provide additional loans to borrowers with existing debts
#5
What is the concept of 'loan covenants,' and how do they impact borrowers and lenders?
Loan covenants are conditions in a loan agreement that borrowers must meet, and they impact the borrower's credit score
Loan covenants are restrictions on how borrowers can use the loan proceeds, and they protect the lender's interests
Loan covenants are additional fees charged by lenders for loan processing
Loan covenants are only applicable to short-term loans
#6
Which of the following formulas is used to calculate the monthly payment in a loan amortization schedule?
Principal x Interest Rate
Principal / Number of Payments
Principal x (Interest Rate / (1 - (1 + Interest Rate)^-Number of Payments))
Principal + Interest Rate
#7
What is the purpose of a grace period in loan repayment?
A period to delay the loan approval process
A period during which no interest is charged on the loan
A period to increase the interest rate
A period to reduce the loan amount
#8
What is the purpose of a loan term or tenor?
To determine the interest rate on the loan
To specify the period over which the loan will be repaid
To determine the loan origination fee
To assess the borrower's creditworthiness
#9
What role does the principal play in loan amortization?
The interest charged on the loan
The initial amount borrowed or the loan amount
The number of payments in the loan term
The total cost of the loan
#10
What does the term 'prepayment penalty' mean in the context of loans?
A fee charged for repaying the loan before the scheduled end of the loan term
A fee charged for delaying loan payments
A fee charged for processing loan applications
A fee charged for modifying loan terms
#11
What is the difference between simple interest and compound interest in the context of loans?
Simple interest is charged on the principal amount only, while compound interest is charged on both the principal and accumulated interest
Simple interest is charged at a higher rate than compound interest
Simple interest is only applicable to short-term loans, while compound interest is for long-term loans
There is no difference; the terms are used interchangeably
#12
What is a balloon payment in loan amortization?
A payment made with a balloon-shaped check
A large final payment that repays the remaining balance of the loan
A payment made using a balloon loan
A payment made with inflated currency
#13
What is the Loan-to-Value (LTV) ratio in the context of mortgage loans?
The ratio of loan interest to the loan principal
The ratio of the loan amount to the appraised value of the property
The ratio of the loan term to the interest rate
The ratio of the loan origination fee to the loan amount
#14
How does a fixed-rate mortgage differ from an adjustable-rate mortgage?
Fixed-rate mortgages have a constant interest rate, while adjustable-rate mortgages have fluctuating interest rates
Fixed-rate mortgages are only available for short terms, while adjustable-rate mortgages are for long terms
Fixed-rate mortgages have higher interest rates than adjustable-rate mortgages
There is no difference; the terms are used interchangeably
#15
What is the purpose of loan origination fees, and how are they typically structured?
To cover the cost of advertising loans, structured as a fixed percentage of the loan amount
To compensate loan officers, structured as a flat fee per loan application
To cover administrative costs, structured as a percentage of the loan amount
To discourage borrowers from applying for loans, structured as a variable fee based on credit score