Advanced Mortgage Products Flashcards
7 cards from real CMC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Advanced Mortgage Products flashcards as text
Which mortgage structure allows a borrower to pay a set amount monthly that is less than the scheduled P&I payment, with the shortfall added to the principal balance?
Answer: Negative amortization mortgage
A negative amortization mortgage allows payments below the interest owed, with the difference (deferred interest) added to the outstanding principal balance.
A borrower in a rural area wants 100% financing on a primary residence. Which loan product is most appropriate?
Answer: USDA Rural Development Guaranteed Loan
The USDA Rural Development Guaranteed Loan program offers 100% financing for eligible rural properties to borrowers who meet income limits.
What is the function of a 'recourse' clause in a home equity loan?
Answer: It allows the lender to pursue the borrower's other assets if the collateral is insufficient to cover the debt
A recourse clause gives the lender the right to pursue the borrower's other assets beyond the collateral if the property sale does not fully satisfy the debt.
A bridge loan is most commonly used to:
Answer: Provide short-term financing so a buyer can purchase a new home before selling the current one
Bridge loans provide short-term interim financing that allows homebuyers to close on a new property while awaiting the sale of their existing home.
In a graduated payment mortgage (GPM), how do monthly payments typically behave over time?
Answer: Payments start lower and increase at scheduled intervals before leveling off
A GPM features lower initial payments that gradually increase at predetermined intervals, then level off at a fixed amount for the remaining term.
Which product would a lender most likely recommend to a borrower who wants to access home equity without refinancing the first mortgage?
Answer: Stand-alone second mortgage or HELOC
A stand-alone second mortgage or HELOC allows borrowers to access equity without disturbing their existing first mortgage terms, which is especially valuable when the first mortgage has a low rate.
What is the primary risk to a lender when originating a negative amortization loan?
Answer: Increasing LTV as the loan balance grows above the original amount
Negative amortization causes the loan balance to rise, potentially increasing the LTV ratio above 100%, which heightens the lender's credit risk if the borrower defaults.