Mortgage Terms 2

Question 1

What is 'negative amortization' in a mortgage?

Accepted Answer

When monthly payments are less than the interest owed, causing the loan balance to grow

Answer

Negative amortization occurs when minimum payments don't cover accruing interest, so the unpaid interest is added to the principal balance.

Question 2

What does 'LTV' stand for in mortgage lending?

Accepted Answer

Loan-To-Value ratio

Answer

LTV (Loan-To-Value) is the ratio of the loan amount to the appraised property value, expressed as a percentage.

Question 3

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

Accepted Answer

A provision requiring the full loan balance to be paid when the property is sold or transferred

Answer

A due-on-sale clause (also called an acceleration clause) requires the borrower to pay off the remaining mortgage balance when the property is sold or ownership is transferred.

Question 4

What is 'title insurance' in the context of a mortgage?

Accepted Answer

Insurance that protects against losses from defects or disputes in the property's ownership history

Answer

Title insurance protects the buyer and/or lender from financial loss due to defects in a property's title, such as liens or ownership disputes from before the purchase.

Question 5

In mortgage terms, what is a 'rate cap'?

Accepted Answer

A limit on how much an adjustable-rate mortgage's interest rate can change in a given period or over the loan's life

Answer

A rate cap limits how much an ARM's interest rate can increase per adjustment period and/or over the life of the loan, protecting borrowers from unlimited rate increases.

Mortgage Practice Test

Mortgage Practice Test

Mortgage Terms 2