Loans Mortgage Loan 3

Question 1

What is a 'balloon mortgage'?

Accepted Answer

A loan with small regular payments followed by a large lump-sum payment at the end

Answer

A balloon mortgage requires relatively small payments during the loan term, with the remaining balance due as a large single payment at maturity.

Question 2

Which type of refinance allows a homeowner to borrow more than they owe and receive the difference in cash?

Accepted Answer

Cash-out refinance

Answer

A cash-out refinance replaces the existing mortgage with a larger loan, giving the borrower the equity difference in cash.

Question 3

What is the 'due-on-sale' clause in a mortgage?

Accepted Answer

A provision allowing the lender to demand full repayment when the property is sold

Answer

The due-on-sale clause lets the lender call the entire loan balance due immediately if the borrower transfers or sells the property.

Question 4

A mortgage with a 30-year term and a fixed rate of 7% on a $300,000 loan—which amortization outcome is true?

Accepted Answer

Early payments consist mainly of interest

Answer

In early amortization, most of each payment covers interest because the outstanding principal balance is at its highest.

Question 5

What does 'escrow' typically cover in a mortgage payment?

Accepted Answer

Property taxes and homeowner's insurance held by the lender

Answer

An escrow account holds funds collected monthly by the lender to pay property taxes and homeowner's insurance on the borrower's behalf.

Loans Practice Test