Mortgage Products and Practices Flashcards

Which loan feature allows a borrower to convert from an adjustable rate to a fixed rate without refinancing?

Answer: Conversion option

A conversion option in an ARM allows the borrower to switch to a fixed rate at specified times without a full refinance.

What is the primary purpose of a piggyback loan (80-10-10)?

Answer: To avoid paying private mortgage insurance

An 80-10-10 piggyback combines an 80% first mortgage and 10% second mortgage so the borrower avoids PMI with only 10% down.

A balloon mortgage with a 5/25 structure means the loan has:

Answer: Payments amortized over 25 years with full balance due in 5 years

A 5/25 balloon is amortized as a 25-year loan but the remaining balance becomes due in full after 5 years.

Which index is commonly used for adjusting rates on Home Equity Lines of Credit (HELOCs)?

Answer: Prime Rate

HELOCs are typically indexed to the Prime Rate, which moves with the federal funds rate.

Under the TRID rule, when must the Loan Estimate be delivered to the borrower?

Answer: Within 3 business days of receiving a complete loan application

TRID requires the Loan Estimate to be provided within 3 business days of receiving the six triggering pieces of application information.

A graduated payment mortgage (GPM) is best suited for borrowers who:

Answer: Anticipate income growth and can accept negative amortization early on

GPMs start with lower payments that increase over time; early payments may not cover all interest, causing negative amortization.

Which statement about interest-only (IO) loans is accurate?

Answer: The borrower builds no equity through payments during the IO period

During the interest-only period, payments cover only interest, so no principal is paid down and equity is not built through loan payments.