Loans and Mortgages: Master the Basics for Business Success

Question 1

Which of the following is not considered a type of mortgage?

Accepted Answer

Payday loan

Answer

Fixed-rate mortgage

Answer

Variable-rate mortgage

Answer

Adjustable-rate mortgage

Question 2

Which formula accurately calculates the monthly repayment on a loan?

Accepted Answer

(Loan Amount * Interest Rate * Term) / 12

Answer

(Loan Amount + Interest Rate) / Term

Answer

(Loan Amount - Interest Rate) / Term

Answer

(Loan Amount / Interest Rate) * Term

Question 3

What is the primary purpose of an amortization schedule?

Accepted Answer

To illustrate the gradual reduction of loan balance over time

Answer

To calculate the total cost of a loan

Answer

To determine the future value of a loan

Answer

To compare different loan options

Question 4

What is a key benefit of a fixed-rate mortgage?

Accepted Answer

Stability of monthly payments throughout the loan term

Answer

Lower interest rates compared to variable-rate mortgages

Answer

Shorter loan terms

Answer

Flexibility to switch lenders without penalty

Question 5

Distinguish between simple interest loans and compound interest loans.

Accepted Answer

Simple interest accrues only on the principal amount, while compound interest accrues on both the principal and accumulated interest

Answer

Compound interest accrues only on the principal amount, while simple interest accrues on both the principal and accumulated interest

Answer

Simple interest rates are typically fixed, whereas compound interest rates can fluctuate

Answer

There is no fundamental difference between simple interest loans and compound interest loans

Question 6

What is the primary role of a mortgage broker?

Accepted Answer

To provide guidance and facilitate the process of obtaining a mortgage

Answer

To directly lend money to borrowers

Answer

To guarantee mortgage approval

Answer

To manage ongoing mortgage payments

Question 7

What is the fundamental distinction between a secured loan and an unsecured loan?

Accepted Answer

Secured loans require collateral, whereas unsecured loans do not

Answer

Unsecured loans require collateral, whereas secured loans do not

Answer

Secured loans always offer lower interest rates compared to unsecured loans

Answer

Unsecured loans always offer lower interest rates compared to secured loans

Question 8

Categorize the following loans as either short-term or long-term:

1. Invoice financing
2. Bank overdraft
3. Equipment leasing
4. Mortgage

Accepted Answer

Short-term Loans: 1. Invoice financing, 2. Bank overdraft
Long-term Loans: 3. Equipment leasing, 4. Mortgage

Answer

Short-term Loans: 2. Bank overdraft, 3. Equipment leasing
Long-term Loans: 1. Invoice financing, 4. Mortgage

Answer

Short-term Loans: 3. Equipment leasing, 4. Mortgage
Long-term Loans: 1. Invoice financing, 2. Bank overdraft

Answer

Short-term Loans: 1. Invoice financing, 4. Mortgage
Long-term Loans: 2. Bank overdraft, 3. Equipment leasing

Question 9

How do interest rates affect the total amount you pay when borrowing money?

Accepted Answer

Higher interest rates raise the total cost of borrowing.

Answer

Higher interest rates lower the total cost of borrowing.

Answer

Lower interest rates raise the total cost of borrowing.

Answer

Interest rates don't affect the total cost of borrowing.

Question 10

Which type of loan requires collateral, such as a property or a vehicle, to secure the loan?

Accepted Answer

Mortgage

Answer

Personal loan

Answer

Payday loan

Answer

Credit card loan

Question 11

The annual percentage rate (APR) on a loan represents:

Accepted Answer

Interest charges and fees

Answer

Interest charges only

Answer

Principal amount

Answer

Compound interest

Question 12

Which of the following is NOT a factor that influences the interest rate on a mortgage?

Accepted Answer

Age of the borrower

Answer

Loan amount

Answer

Loan term

Answer

Credit score

Question 13

Which repayment method typically results in paying the highest total interest over the life of the loan?

Accepted Answer

Interest-only method

Answer

Straight-line method

Answer

Reducing balance method

Answer

Balloon payment method

Question 14

What is a potential drawback of taking out a loan with a low interest rate?

Accepted Answer

Longer loan term

Answer

Higher monthly repayments

Answer

Increased total interest paid

Answer

No flexibility in repayment options

Question 15

Which document is usually NOT required when applying for a loan?

Accepted Answer

Vehicle registration document

Answer

Bank statements

Answer

Payslips

Answer

Proof of address

Question 16

Which of the following is NOT a type of mortgage?

Accepted Answer

Bridge loan

Answer

Fixed-rate mortgage

Answer

Equity release mortgage

Answer

Adjustable-rate mortgage

Question 17

Which of the following is an advantage of a fixed-rate mortgage?

Accepted Answer

Predictable monthly payments

Answer

Lower interest rates

Answer

Flexibility to make extra payments

Answer

No early repayment fees

Question 18

Which of the following is a potential disadvantage of a short-term loan?

Accepted Answer

Higher interest rates

Answer

Predictable monthly payments

Answer

No early repayment fees

Answer

Longer repayment period

Question 19

A customer has a mortgage with a 2% annual interest rate and a loan amount of £100,000. What is the approximate monthly repayment amount?

Accepted Answer

£430.22

Answer

£400.00

Answer

£500.00

Answer

£450.00

Question 20

Which of the following is a common feature of an equity release mortgage?

Accepted Answer

No monthly repayments required

Answer

No early repayment fees

Answer

Lower interest rates

Answer

Fixed loan term

Question 21

Which of the following is a loan secured against an asset used as collateral?

Accepted Answer

Secured loan

Answer

Student loan

Answer

Line of credit

Answer

Overdraft

Question 22

What is the primary difference between a mortgage and a personal loan?

Accepted Answer

A mortgage is secured against a property, while a personal loan is unsecured.

Answer

A mortgage has a longer repayment period.

Answer

A personal loan has a higher interest rate.

Answer

There is no difference between a mortgage and a personal loan.

Question 23

What is the formula for calculating the monthly repayment of a loan?

Accepted Answer

R = (P * r * t) / (1 - (1 + r)^-nt)

Answer

R = P / (r * nt)

Answer

R = P * r / nt

Answer

R = (P + r) / nt

Question 24

How does an increase in interest rate affect monthly loan repayments?

Accepted Answer

Monthly repayments will increase.

Answer

Monthly repayments will decrease.

Answer

Monthly repayments will stay the same.

Answer

The impact is unpredictable.

Question 25

What is the purpose of equity in a mortgage transaction?

Accepted Answer

To reduce the risk to the lender by providing a cushion against potential property value fluctuations.

Answer

To speed up the loan repayment process.

Answer

To lower the interest rate.

Answer

To increase the loan amount.

Question 26

Which type of mortgage offers a fixed interest rate for the entire loan period?

Accepted Answer

Fixed-rate mortgage

Answer

Adjustable-rate mortgage

Answer

Tracker mortgage

Answer

Discount mortgage

Question 27

What is the penalty typically charged for repaying a mortgage early?

Accepted Answer

Early repayment charge

Answer

Balance transfer fee

Answer

Arrangement fee

Answer

Interest adjustment

Question 28

What is a key difference between an endowment mortgage and a repayment mortgage?

Accepted Answer

An endowment mortgage involves investing a portion of the monthly repayments in an investment plan, while a repayment mortgage does not.

Answer

There is no difference between the two types of mortgages.

Answer

A repayment mortgage has a shorter repayment period.

Answer

An endowment mortgage is considered less risky.