#1
What is the primary purpose of a mortgage?
To purchase real estate
ExplanationMortgage enables buying property by spreading payment over time.
#2
What is a jumbo mortgage?
A mortgage exceeding the conforming loan limits set by government-sponsored enterprises
ExplanationLoan exceeding standard loan limits.
#3
What is the primary advantage of an adjustable-rate mortgage (ARM)?
Potential for lower initial interest rates
ExplanationOffers lower initial interest rates than fixed-rate mortgages.
#4
What does the term 'principal' refer to in the context of a mortgage?
The initial loan amount borrowed
ExplanationOriginal loan amount before interest.
#5
What is the significance of the down payment in a mortgage transaction?
It represents the initial payment made by the borrower towards the property purchase
ExplanationInitial payment towards property purchase.
#6
Which type of mortgage has a fixed interest rate for the entire loan term?
Fixed-rate mortgage
ExplanationInterest rate remains constant throughout the loan tenure.
#7
What does LTV stand for in the context of mortgages?
Loan to Value
ExplanationRatio determining loan amount in relation to property value.
#8
What is a prepayment penalty in the context of mortgages?
A fee charged for paying off the mortgage early
ExplanationCharge imposed for settling mortgage ahead of schedule.
#9
What does the term 'escrow' refer to in the mortgage process?
A third-party account to hold funds for taxes and insurance
ExplanationAccount for managing taxes and insurance payments.
#10
What is the debt-to-income ratio, and how does it relate to mortgage approval?
It measures the borrower's total debt compared to their income, impacting loan eligibility
ExplanationAssesses borrower's debt in relation to income for loan approval.
#11
In a mortgage, what is private mortgage insurance (PMI) used for?
To protect the lender in case of borrower default
ExplanationInsurance safeguards lender against borrower default.
#12
What is an amortization schedule in the context of mortgages?
A schedule for repaying the loan principal and interest over time
ExplanationDetailed plan for paying off loan principal and interest.
#13
What is the key difference between a conventional mortgage and an FHA loan?
The loan amount limits
ExplanationConventional loans have stricter limits compared to FHA loans.
#14
What is the purpose of the Truth in Lending Act (TILA) in the mortgage industry?
To ensure fair lending practices and transparency in loan terms
ExplanationRegulates lenders to disclose loan terms transparently.
#15
What is a reverse mortgage primarily designed for?
Senior citizens to convert home equity into cash
ExplanationAllows seniors to use home equity for cash.