Wealth Building with Mortgages Flashcards
7 cards from real CMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Wealth Building with Mortgages flashcards as text
A borrower chooses a 15-year mortgage over a 30-year mortgage at the same rate. Compared to the 30-year loan, the 15-year mortgage will:
Answer: Have a higher monthly payment and significantly less total interest
A 15-year mortgage has higher monthly payments but dramatically reduces total interest paid and builds equity far more quickly.
When evaluating a rental property for wealth-building purposes, what does the capitalization rate (cap rate) represent?
Answer: The annual net operating income divided by the property's value
Cap rate equals NOI divided by property value, expressing the unlevered annual return on a real estate investment.
Which mortgage feature allows a borrower to recapture principal payments and redraw them like a line of credit?
Answer: All-in-one mortgage
An all-in-one mortgage combines a checking account with a mortgage, allowing borrowers to deposit income directly and redraw funds as needed, reducing interest daily.
A real estate investor wants maximum leverage with the lowest down payment for a primary residence. Which loan program allows as little as 3.5% down?
Answer: FHA loan
FHA loans require a minimum 3.5% down payment for borrowers with credit scores of 580 or above, maximizing leverage for primary-residence buyers.
How does property depreciation benefit a real estate investor's tax position?
Answer: It creates a non-cash deduction that reduces taxable rental income
Depreciation is a non-cash IRS-allowed deduction that reduces taxable rental income, often allowing investors to show a tax loss on a cash-flow-positive property.
An investor purchases a property with seller financing. Compared to a bank loan, seller financing typically offers:
Answer: More flexible terms negotiated directly between buyer and seller
Seller financing bypasses institutional lenders, allowing buyers and sellers to negotiate custom terms including rate, amortization, and down payment.
What is the primary wealth-building benefit of buying in a neighborhood undergoing gentrification?
Answer: Higher-than-average property appreciation as the area improves
Properties in gentrifying neighborhoods often appreciate faster than market averages as infrastructure, amenities, and demand improve over time.