#1
What is the definition of a mortgage?
A legal agreement where a bank lends money at interest in exchange for taking title of the debtor's property
ExplanationProperty title held by the lender in exchange for a loan.
#2
Which of the following factors typically affects the interest rate on a mortgage loan?
The borrower's credit score
ExplanationCreditworthiness influencing loan interest rates.
#3
In a fixed-rate mortgage, what remains constant throughout the life of the loan?
The interest rate
ExplanationStability of interest rate in fixed-rate mortgages.
#4
What is the purpose of a home appraisal in the mortgage process?
To evaluate the property's value
ExplanationAssessment of property value in mortgage approval.
#5
Which type of mortgage typically has the lowest initial interest rate?
Adjustable-rate mortgage
ExplanationLower initial rates in adjustable-rate mortgages.
#6
What is the purpose of a down payment in a mortgage?
To reduce the amount borrowed
ExplanationReduction of borrowed amount with initial payment.
#7
What is an amortization schedule?
A schedule that shows the breakdown of monthly mortgage payments between principal and interest
ExplanationDetailed plan of principal and interest payments over time.
#8
What is the debt-to-income ratio (DTI) used for in mortgage calculations?
To assess a borrower's ability to repay a loan
ExplanationEvaluation of borrower's financial capacity.
#9
What does the term 'points' refer to in the context of a mortgage?
Upfront fees paid to the lender to reduce the interest rate
ExplanationFees to lower mortgage interest rates.
#10
What is Private Mortgage Insurance (PMI) used for?
To protect the lender in case the borrower defaults on the loan
ExplanationLender protection against borrower default.
#11
What is the definition of a balloon mortgage?
A mortgage where the borrower makes interest-only payments for a certain period and then pays off the entire principal amount in a lump sum
ExplanationInterest-only payments followed by lump-sum principal payment.
#12
What is a reverse mortgage primarily used for?
To access the equity in one's home without selling it
ExplanationUtilizing home equity without selling the property.
#13
What is the concept of loan-to-value (LTV) ratio in mortgage lending?
The ratio of the loan amount to the appraised value of the property
ExplanationComparison of loan amount to property value.
#14
Which of the following is a disadvantage of an adjustable-rate mortgage (ARM)?
The interest rate may increase over time
ExplanationPotential for rising interest rates in ARM.
#15
What is the Debt-Service Coverage Ratio (DSCR) used for in commercial mortgage lending?
To assess the property's ability to generate enough income to cover debt payments
ExplanationEvaluation of property income covering debts.
#16
What is a prepayment penalty in mortgage lending?
A penalty imposed on the borrower for paying off the loan early
ExplanationPenalty for early repayment of mortgage.
#17
What is the role of an escrow account in a mortgage?
To hold funds for property taxes and insurance
ExplanationFunds held for property taxes and insurance payments.
#18
What is a jumbo mortgage?
A mortgage that exceeds the loan limits set by Fannie Mae and Freddie Mac
ExplanationMortgage surpassing Fannie Mae and Freddie Mac limits.