End of Chapter 19 Questions and Answers

End of Chapter 19 Questions and Answers - End of Chapter 19...

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End of Chapter 19 Questions and Answers 1. What is the difference between the primary mortgage market and the secondary market? Answer: The primary mortgage market is where loans are originated while the secondary mortgage market is where existing loans are traded. 2. What information does a borrower need to know to calculate an APR? When will the contract rate and the APR be identical? Answer: The contract rate, term of the loan and points are sufficient to calculate an APR where one point equals one percent of the original loan. The APR or annual percentage rate and the contract rate will only be equal if no points are charged. 3. What information does a borrower need to know in order to calculate the effective borrowing costs? Answer: The same information as in #2 above as well as the expected time the loan will be held so a payoff can be calculated. 4. When points are charged the effective borrowing costs can increase dramatically if a loan is prepaid. When will the APR and effective borrowing costs be identical, independent of when the loan is prepaid?

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