SAFE Products and Calculations 2 — Questions and Answers
Question 1: A borrower has a $300,000 loan at 6% annual interest. What is the monthly interest portion of the first payment using simple interest calculation?
- $1,500 (Correct answer)
- $1,800
- $1,200
- $2,400
Correct answer: $1,500
Monthly interest = $300,000 × (6% / 12) = $300,000 × 0.005 = $1,500.
Question 2: An ARM has a 2/6 cap structure with an initial rate of 4.5%. What is the maximum rate the loan can ever reach?
- 10.5% (Correct answer)
- 8.5%
- 6.5%
- 12.5%
Correct answer: 10.5%
A lifetime cap of 6% added to the initial rate of 4.5% yields a maximum possible rate of 10.5%.
Question 3: Which loan product is characterized by payments that cover only interest for a set period, after which the payment increases substantially?
- Interest-only mortgage (Correct answer)
- Fully amortizing fixed-rate loan
- Balloon mortgage
- Graduated payment mortgage
Correct answer: Interest-only mortgage
An interest-only mortgage requires only interest payments during the initial period, then fully amortized payments begin.
Question 4: A home appraises at $250,000 and the borrower puts 10% down. What is the LTV ratio?
- 90% (Correct answer)
- 10%
- 80%
- 110%
Correct answer: 90%
LTV = Loan Amount / Appraised Value = $225,000 / $250,000 = 90%.
Question 5: What is the FHA upfront mortgage insurance premium (UFMIP) rate for most FHA purchase loans?
- 1.75% (Correct answer)
- 0.85%
- 2.25%
- 0.55%
Correct answer: 1.75%
FHA charges a UFMIP of 1.75% of the base loan amount, which can be financed into the loan.
Question 6: A conventional loan with an 85% LTV on a $400,000 purchase would require PMI. Approximately how much is the loan amount?
- $340,000 (Correct answer)
- $360,000
- $320,000
- $380,000
Correct answer: $340,000
Loan amount = $400,000 × 85% = $340,000, meaning the borrower puts $60,000 down.
Question 7: A 5/1 ARM means the interest rate is fixed for the first 5 years and then adjusts every:
- 1 year (Correct answer)
- 5 years
- 6 months
- 3 years
Correct answer: 1 year
In a 5/1 ARM, '5' is the fixed period in years and '1' is the adjustment frequency in years after that.
SAFE Products and Calculations 2
A borrower has a $300,000 loan at 6% annual interest.
What is the monthly interest portion of the first payment using simple interest calculation?