#1
What is the typical term length for a fixed-rate mortgage?
30 years
ExplanationStandard duration for repayment with a constant interest rate.
#2
What does LTV stand for in mortgage lending?
Loan to Value
ExplanationRatio representing the loan amount compared to the property's appraised value.
#3
What is private mortgage insurance (PMI) used for?
To protect the lender in case the borrower defaults on the loan
ExplanationCoverage for lenders against borrower default.
#4
What does APR stand for in relation to a mortgage?
Annual Percentage Rate
ExplanationOverall cost of borrowing, including interest and fees, annually expressed as a percentage.
#5
What is an amortization schedule in the context of a mortgage?
A schedule showing the breakdown of principal and interest payments over the life of the loan
ExplanationDetailed plan outlining the allocation of payments toward principal and interest over the loan term.
#6
What is the purpose of a prepayment penalty in a mortgage contract?
To discourage borrowers from paying off the loan early
ExplanationFee imposed on borrowers for early repayment, aiming to ensure lender profitability.
#7
What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?
Fixed-rate mortgages have a constant interest rate, while ARMs have a rate that can change over time
ExplanationStable interest rate versus a fluctuating rate throughout the loan term.
#8
What is the difference between a mortgage broker and a mortgage lender?
A mortgage broker originates loans using their own funds, while a mortgage lender connects borrowers with loan options from various lenders
ExplanationDirect lender versus intermediary connecting borrowers with loan products.
#9
What is an escrow account used for in mortgage financing?
To pay property taxes and insurance on behalf of the borrower
ExplanationAn account to manage payments for property taxes and insurance.
#10
What is the loan-to-value ratio (LTV) formula?
LTV = Loan Amount / Property Appraisal Value
ExplanationCalculation indicating the proportion of the property's value financed through a loan.
#11
What is a balloon mortgage?
A mortgage with a large final payment at the end of the loan term
ExplanationLoan structure involving small regular payments with a significant final lump sum.
#12
What is a jumbo mortgage?
A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac
ExplanationLoan exceeding the maximum amount eligible for purchase by government-sponsored entities.
#13
What is mortgage refinancing?
The process of replacing an existing mortgage with a new one
ExplanationTransition from one mortgage to another, often to secure better terms or adjust finances.
#14
What is a reverse mortgage?
A loan available to homeowners aged 62 or older, allowing them to convert home equity into cash
ExplanationFinancial product enabling older homeowners to tap into home equity without selling.