#1
What does the term 'amortization' refer to in the context of loans?
The repayment of a loan over time
ExplanationRepayment of loan over time
#2
In loan amortization, what does the term 'negative amortization' mean?
The increase in the loan amount due to deferred interest
ExplanationIncrease in loan amount due to deferred interest
#3
What is the Debt-to-Income (DTI) ratio, and how is it relevant in the loan approval process?
It is the ratio of monthly debt payments to monthly income, influencing loan approval
ExplanationRatio of debt payments to income
#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
ExplanationAdjust loan terms for borrower benefit
#5
What is the concept of 'loan covenants,' and how do they impact borrowers and lenders?
Loan covenants are restrictions on how borrowers can use the loan proceeds, and they protect the lender's interests
ExplanationRestrictions on loan use, protect lender interests
#6
Which of the following formulas is used to calculate the monthly payment in a loan amortization schedule?
Principal x (Interest Rate / (1 - (1 + Interest Rate)^-Number of Payments))
ExplanationFormula for monthly payment calculation
#7
What is the purpose of a grace period in loan repayment?
A period during which no interest is charged on the loan
ExplanationInterest-free period for repayment
#8
What is the purpose of a loan term or tenor?
To specify the period over which the loan will be repaid
ExplanationDuration of loan repayment
#9
What role does the principal play in loan amortization?
The initial amount borrowed or the loan amount
ExplanationInitial loan amount
#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
ExplanationFee for early loan repayment
#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
ExplanationSimple vs compound interest
#12
What is a balloon payment in loan amortization?
A large final payment that repays the remaining balance of the loan
ExplanationFinal lump sum payment
#13
What is the Loan-to-Value (LTV) ratio in the context of mortgage loans?
The ratio of the loan amount to the appraised value of the property
ExplanationLoan amount compared to property value
#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
ExplanationStable vs fluctuating interest rates
#15
What is the purpose of loan origination fees, and how are they typically structured?
To cover administrative costs, structured as a percentage of the loan amount
ExplanationCover administrative costs, percentage of loan