Mortgage General Mortgage Knowledge 4

Question 1

If a borrower has a 30-year fixed mortgage at 7% interest, what remains constant throughout the loan?

Accepted Answer

The monthly payment amount and interest rate

Answer

With a 30-year fixed-rate mortgage, both the interest rate and the principal-and-interest portion of the monthly payment remain unchanged for the life of the loan.

Question 2

What is 'loan-to-value' (LTV) ratio?

Accepted Answer

The percentage of the property's value that the loan represents

Answer

LTV is calculated by dividing the loan amount by the property's appraised value; a lower LTV indicates more equity and less risk for the lender.

Question 3

Under the Real Estate Settlement Procedures Act (RESPA), what is prohibited?

Accepted Answer

Paying kickbacks or referral fees between settlement service providers

Answer

RESPA prohibits kickbacks and unearned fees between settlement service providers (e.g., realtors, lenders, and title companies) that inflate consumer costs.

Question 4

What is a 'short sale' in real estate?

Accepted Answer

Selling a home for less than the outstanding mortgage balance with lender approval

Answer

A short sale occurs when a homeowner sells the property for less than what is owed on the mortgage, requiring the lender's approval to accept the reduced payoff.

Question 5

What is an 'assumption' of a mortgage?

Accepted Answer

A buyer taking over the seller's existing mortgage terms and balance

Answer

An assumable mortgage allows a buyer to take over the seller's existing loan, including its interest rate and remaining balance, subject to lender approval.

Mortgage Practice Test

Mortgage Practice Test

Mortgage General Mortgage Knowledge 4