Housing and Real Estate Finance Flashcards

What does the term 'amortization' refer to in the context of a mortgage?

Answer: The gradual repayment of a loan through scheduled principal and interest payments

Amortization is the process by which a borrower repays a loan over time through regular payments that cover both principal and interest.

A client's front-end debt-to-income (DTI) ratio is calculated using:

Answer: Monthly housing costs only divided by gross monthly income

The front-end DTI ratio compares only housing-related costs (principal, interest, taxes, insurance) to gross monthly income.

What is Private Mortgage Insurance (PMI) and when is it typically required?

Answer: Insurance that protects the lender; typically required when the down payment is less than 20%

PMI protects the lender against default and is typically required on conventional loans when the borrower's down payment is less than 20% of the purchase price.

Which federal law requires lenders to provide borrowers with a Loan Estimate within three business days of receiving a mortgage application?

Answer: TILA-RESPA Integrated Disclosure (TRID) rule

The TRID rule (Know Before You Owe mortgage disclosure rule) requires lenders to provide a Loan Estimate within three business days of application.

An adjustable-rate mortgage (ARM) with a 5/1 structure means:

Answer: The rate is fixed for 5 years, then adjusts annually

A 5/1 ARM has a fixed interest rate for the first 5 years, after which the rate adjusts once per year based on a market index.

Home equity is calculated as:

Answer: The current market value of the home minus the outstanding mortgage balance

Home equity equals the current market value of the property minus any outstanding mortgage or lien balances.