Tennessee Real Estate Affiliate Broker Exam — All Questions

A purchase-money mortgage most commonly refers to:

• a.Seller financing, in which the seller extends credit to the buyer toward the purchase✓
• b.A government cash grant provided to qualifying first-time home buyers toward a down payment
• c.A loan that is secured solely by the buyer's personal property rather than by the real estate
• d.A loan used only to refinance and replace an existing mortgage already on the property

A purchase-money mortgage is credit the seller extends to the buyer as part of the purchase price, letting the buyer take title while paying the seller over time. It is a financing tool created at the sale, not a refinance, grant, or chattel loan.

A prepayment penalty in a loan is intended to:

• a.Increase the loan's interest rate automatically after the borrower has fallen into default
• b.Punish the borrower for submitting a scheduled monthly payment after its due date has passed
• c.Require the borrower to purchase private mortgage insurance for the life of the mortgage
• d.Compensate the lender for interest lost when the loan is paid off early✓

A prepayment penalty charges the borrower for retiring the loan ahead of schedule, offsetting the interest the lender expected to earn. It is unrelated to late payments (a late fee) or default (acceleration), and it is restricted or barred on many consumer mortgages.

The Truth in Lending Act's right of rescission gives a borrower three business days to cancel:

• a.A commercial construction loan taken out by a developer to build an income-producing project
• b.Any real estate purchase and sale contract the borrower signs, whether financed or all cash
• c.Certain loans that place a new lien on the borrower's principal residence✓
• d.The purchase-money loan the borrower is using to buy or build a brand-new principal home

TILA grants a three-business-day right of rescission on many consumer credit transactions that create a lien on the borrower's principal dwelling, such as refinances and home-equity lines. It does NOT apply to the loan used to purchase or build the borrower's residence, which is why a home-purchase loan cannot be rescinded under this rule.

A balloon loan is one in which:

• a.The interest rate floats up and down with a published index throughout the entire loan term
• b.The lender advances additional funds to the borrower every year rather than collecting payments
• c.Each level payment fully amortizes the loan so that nothing at all remains owed at the end
• d.The payments do not fully retire the debt, leaving a large lump sum due at maturity✓

A balloon loan is only partially amortized (or interest-only), so the regular payments do not pay it off and a large final 'balloon' payment of the remaining principal is due at maturity. A fully amortized loan, by contrast, ends at a zero balance with no balloon.

A mortgage clause that lets the lender demand full repayment of the loan balance if the borrower sells or transfers the property is a(n):

• a.Defeasance clause
• b.Prepayment clause
• c.Subordination clause
• d.Alienation (due-on-sale) clause✓

An alienation clause, also called a due-on-sale clause, allows the lender to call the entire balance due when the property is transferred, preventing an unqualified buyer from assuming the loan. A defeasance clause requires the lender to release the lien when the debt is paid in full.