#1
What is a common type of mortgage where the interest rate remains the same for the entire term of the loan?
Fixed-rate mortgage
ExplanationFixed-rate mortgages have a consistent interest rate throughout the loan term.
#2
Which of the following is NOT a typical source of real estate financing?
Mortgage brokers
ExplanationMortgage brokers are intermediaries, not direct sources of financing.
#3
What is the primary purpose of a down payment when purchasing real estate?
To reduce the risk for the lender
ExplanationDown payments lower the amount borrowed, reducing the lender's risk.
#4
What is Private Mortgage Insurance (PMI) typically required for?
For loans with a down payment less than 20%
ExplanationPMI is often required for loans with down payments below 20% to protect lenders against default.
#5
What is the Loan-to-Value (LTV) ratio in real estate financing?
The ratio of the loan amount to the property's appraised value
ExplanationLTV ratio expresses the loan amount as a percentage of the property's appraised value.
#6
What is a prepayment penalty in the context of mortgage loans?
A penalty for paying off the loan early
ExplanationPrepayment penalties are charges imposed for repaying a mortgage before the agreed-upon term.
#7
What is the purpose of a home appraisal in the mortgage process?
To determine the property's market value
ExplanationHome appraisals assess a property's value to ensure it aligns with the loan amount.
#8
Which of the following factors can affect the interest rate offered on a mortgage loan?
All of the above
ExplanationVarious factors, including credit score, loan amount, and market conditions, influence mortgage interest rates.
#9
Which of the following statements is true about an interest-only mortgage?
The borrower pays only the interest for a certain period, then starts paying principal and interest
ExplanationInterest-only mortgages involve initial interest payments, followed by principal and interest payments.
#10
What is a wrap-around mortgage?
A mortgage where the lender assumes the seller's existing mortgage and provides a new mortgage to the buyer
ExplanationWrap-around mortgages involve a new loan that 'wraps around' the existing one.
#11
Which of the following is a disadvantage of an adjustable-rate mortgage (ARM)?
Higher risk of payment shock
ExplanationARMs carry the risk of payment shock due to fluctuating interest rates.
#12
What is the role of Fannie Mae and Freddie Mac in the mortgage market?
They purchase and securitize mortgages, providing liquidity to the mortgage market
ExplanationFannie Mae and Freddie Mac enhance market liquidity by purchasing and securitizing mortgages.