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

Cash-out refinancing allows homeowners to leverage built-up equity to fund income-producing investments, multiplying wealth-building potential.

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

A biweekly payment plan results in 26 half-payments (13 full payments) per year, reducing principal faster and saving substantial interest.

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

House hacking involves living in one unit of a multi-family property while renting the others to offset or eliminate housing costs.

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

DSCR measures whether a property generates enough income to cover its debt payments, calculated as NOI divided by total debt service.

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

Applying lump sums to principal reduces the outstanding balance, shortening the loan term and significantly decreasing total interest costs.

(CMA) Certified Mortgage Advisor Practice Test