#1
Which type of mortgage has a fixed interest rate for the entire term of the loan?
Fixed-rate mortgage
ExplanationMaintains a constant interest rate throughout the loan duration.
#2
What does PMI stand for in the context of mortgages?
Private Mortgage Insurance
ExplanationInsurance protecting lenders against default risk when LTV ratio exceeds 80%.
#3
What is the role of a mortgage broker in the home loan process?
To act as an intermediary between borrowers and lenders
ExplanationFacilitates loan origination, connecting borrowers with suitable lenders.
#4
Which government-sponsored enterprise (GSE) is responsible for purchasing and securitizing mortgages in the United States?
Fannie Mae
ExplanationFacilitates liquidity in the mortgage market by purchasing and securitizing loans.
#5
What is the loan-to-value (LTV) ratio?
The ratio of the loan amount to the appraised value of the property
ExplanationComparison of loan size to property value, indicating risk.
#6
What is the maximum loan-to-value (LTV) ratio typically allowed for a conventional mortgage?
80%
ExplanationCommonly capped at 80% of the property's appraised value.
#7
What is a 'jumbo' mortgage?
A mortgage for luxury properties exceeding the conforming loan limits
ExplanationDesigned for high-value properties exceeding standard loan limits.
#8
What is the purpose of an escrow account in a mortgage?
To manage and disburse property-related expenses such as taxes and insurance
ExplanationHandles property-related payments, ensuring timely disbursement.
#9
Which of the following is a characteristic of an interest-only mortgage?
Monthly payments only cover the interest portion of the loan
ExplanationBorrower pays only interest initially, delaying principal payments.
#10
What is a 'prepayment penalty' in the context of mortgages?
A penalty for paying off the loan before a specified period
ExplanationCharges imposed for early loan repayment, discouraging prepayment.
#11
Which of the following statements about FHA loans is true?
They are insured by the Federal Housing Administration.
ExplanationFHA insures loans, mitigating risk for lenders and facilitating access to credit.
#12
Which of the following statements about a reverse mortgage is true?
The borrower receives payments from the lender, and the loan is repaid upon the borrower's death or when the home is sold.