Check Your Understanding-Answers
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How much is the loan origination fee and what does it cover?
The loan origination fee is typically 1% of the loan amount. It covers the lender's cost for generating the loan.
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What kind of problem can result from a straight loan?
A straight loan is an interest-only loan. If the property doesn't appreciate in value over time, the borrower could end up with less in proceeds on the sale than what he needs to pay off the loan.
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What kinds of limits are placed on the interest rate in an adjustable rate mortgage?
Interest rate caps limit the amount of interest the borrower can be charged. Periodic caps limit the amount the rate can change at any one time. Overall (or aggregate) caps limit the amount the interest can increase over the life of the loan.
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Describe a reverse annuity mortgage.
With this type of mortgage, the lender makes payments to the borrower. Popular among senior citizens who are on fixed incomes and would like to benefit from their home's equity without having to sell.
