Mortgage Products & Financial Strategies Flashcards
7 cards from real CMPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Mortgage Products & Financial Strategies flashcards as text
A borrower wants to minimize monthly payments for the first 10 years while planning to sell before the adjustment period. Which product best fits this strategy?
Answer: 10/1 ARM
A 10/1 ARM offers a fixed rate for 10 years before adjusting, matching the borrower's timeline and providing lower initial payments than a fixed-rate loan.
Which of the following best describes negative amortization in a mortgage?
Answer: The loan balance increases because monthly payments do not cover accrued interest
Negative amortization occurs when a borrower's payment is insufficient to cover accrued interest, causing the unpaid interest to be added to the loan principal.
A FHA loan requires mortgage insurance for the life of the loan if the original LTV exceeds which threshold?
Answer: 90%
FHA loans with an original LTV above 90% require MIP for the full loan term; those at 90% or below require MIP for 11 years.
What is the primary purpose of a piggyback loan structure such as an 80-10-10?
Answer: To avoid paying private mortgage insurance while financing more than 80% LTV
An 80-10-10 piggyback combines an 80% first mortgage with a 10% second mortgage and 10% down payment to eliminate the need for PMI.
A HECM reverse mortgage requires the borrower to do all of the following EXCEPT:
Answer: Have no existing mortgage on the property
A HECM does not require the home to be free and clear; existing mortgages must simply be paid off from the reverse mortgage proceeds at closing.
When comparing a 15-year versus a 30-year fixed mortgage at the same rate, the 15-year loan typically results in:
Answer: Lower total interest paid but higher monthly payments
A 15-year mortgage has higher monthly payments but significantly less total interest paid due to the shorter payoff period and faster principal reduction.
Which mortgage strategy is most appropriate for a self-employed borrower with irregular income who wants to reduce their documented income for tax purposes while still qualifying?
Answer: Bank statement loan using 12-24 months of deposits
Bank statement loans use 12-24 months of deposit history to calculate qualifying income, making them suitable for self-employed borrowers whose tax returns understate income.