Rollover Loan

### What is a Rollover Loan commonly used for? - [x] A type of mortgage with a long-term amortization and a shorter-term fixed interest rate. - [ ] A type of personal loan with flexible payment terms. - [ ] A credit line that rolls over unused credit monthly. - [ ] A loan specifically for small businesses. > **Explanation:** A Rollover Loan is a type of mortgage used primarily in Canada, featuring a long-term amortization of the principal and a shorter-term fixed interest rate. ### What happens at the end of the shorter-term interest rate period in a Rollover Loan? - [ ] The loan is fully repaid. - [ ] The principal is re-amortized. - [ ] The interest rate is adjusted to the current market rate. - [x] The loan may be extended or rolled over at the current market interest rate. > **Explanation:** In a rollover loan, once the initial short-term interest rate period ends, the interest rate is adjusted to the current market rate and the loan may be extended or rolled over. ### Why might a borrower choose a Rollover Loan? - [ ] To benefit from initially lower, short-term interest rates. - [ ] To avoid long-term financial obligations. - [ ] To evade higher down payment requirements. - [x] To initially benefit from lower interest rates and then potentially renegotiate rates at periodic intervals. > **Explanation:** Borrowers choose Rollover Loans to initially take advantage of lower interest rates and have the option to renegotiate rates periodically. ### How does the amortization period affect monthly payments? - [ ] It has no effect. - [ ] Shorter periods reduce payment amounts. - [x] Longer periods lower the monthly payments. - [ ] Period adjustments only affect principal loans. > **Explanation:** A longer amortization period spreads out the principal repayment, thereby lowering the monthly payments. ### What is a potential risk of a Rollover Loan? - [x] Increased costs if market interest rates rise. - [ ] Fixed monthly payments. - [ ] The necessity of external collateral. - [ ] Prepayment penalties. > **Explanation:** The primary risk is that market interest rates could increase, leading to higher costs at the end of each short-term period. ### Can rollover loans be converted to fixed-rate mortgages? - [ ] No, they cannot. - [x] It depends on the lender's policies. - [ ] Only after 10 years of the loan period. - [ ] They are already fixed-rate mortgages. > **Explanation:** Conversion depends on the lender's policies, and some lenders may allow conversion during rate reset periods. ### What is amortization? - [ ] The increase in property value over time. - [ ] The process of spreading out loan repayments over a period. - [ ] The fixed interest rate period of a mortgage. - [x] The process of spreading out a loan into a series of fixed payments over time. > **Explanation:** Amortization involves spreading out loan repayments into a series of fixed payments over time. ### Which term can alter the structure of the payments in a Rollover Loan? - [x] The length of the amortization period. - [ ] The borrower's credit score. - [ ] The type of the property. - [ ] The lender's physical location. > **Explanation:** The length of the amortization period predominantly affects the structure of the payments, influencing the required monthly payment amounts. ### What is fixed in a Fixed-Rate Mortgage? - [ ] Principal amount. - [ ] Loan term. - [ ] Amortization schedule. - [x] Interest rate. > **Explanation:** In a Fixed-Rate Mortgage, the interest rate remains unchanged throughout the entire term of the loan. ### What is the term applied to the percentage charged on a loan? - [ ] Principal. - [ ] Depreciation. - [x] Interest Rate. - [ ] Asset value. > **Explanation:** The interest rate is the percentage charged on a loan as a fee for borrowing money or the return on an investment.