CMA Wealth Building with Mortgages 2

Question 1

A homeowner uses a cash-out refinance to fund a rental property down payment. What is the primary wealth-building advantage of this strategy?

Accepted Answer

Leverages existing equity to acquire an income-producing asset

Answer

Eliminates PMI on the original mortgage

Answer

Converts non-deductible interest to deductible interest

Answer

Reduces the remaining loan term on the primary residence

Question 2

Which mortgage strategy involves making one extra payment per year to significantly reduce total interest paid over the loan term?

Accepted Answer

Biweekly payment plan

Answer

Interest-only mortgage

Answer

Graduated payment mortgage

Answer

Balloon payment mortgage

Question 3

An investor purchases a duplex with an FHA loan and lives in one unit while renting the other. This strategy is commonly called:

Accepted Answer

House hacking

Answer

Wholesaling

Answer

BRRRR method

Answer

Seller financing

Question 4

What does the debt service coverage ratio (DSCR) measure in investment property lending?

Accepted Answer

The property's net operating income relative to its debt obligations

Answer

The ratio of loan amount to property value

Answer

The borrower's personal credit score threshold

Answer

The percentage of rental income used for maintenance

Question 5

A homeowner accelerates mortgage payoff by applying annual bonuses directly to principal. This primarily builds wealth by:

Accepted Answer

Reducing total interest paid and building equity more quickly

Answer

Increasing the property's market value faster

Answer

Qualifying the homeowner for a higher credit limit

Answer

Lowering the property tax assessment

Question 6

Which type of mortgage product offers wealth-building potential through an adjustable rate that may decrease if market rates fall?

Accepted Answer

Adjustable-rate mortgage (ARM)

Answer

Fixed-rate mortgage

Answer

Reverse mortgage

Answer

Shared appreciation mortgage

Question 7

When using the BRRRR strategy, what does the final 'R' stand for?

Accepted Answer

Repeat

Answer

Refinance

Answer

Rent

Answer

Renovate