Mortgage Terms 3

Question 1

What is an 'escrow account' in mortgage servicing?

Accepted Answer

An account managed by the servicer to collect and pay property taxes and homeowner's insurance

Answer

An account holding funds the lender invests on the borrower's behalf

Answer

A savings account the borrower must maintain as loan collateral

Answer

An account used to store the down payment before closing

Question 2

What does 'underwater' mean when referring to a mortgage?

Accepted Answer

The borrower owes more on the mortgage than the home is currently worth

Answer

The property is located in a flood zone

Answer

The loan has a variable interest rate below the prime rate

Answer

The mortgage payment exceeds 50% of the borrower's income

Question 3

What is a 'balloon payment' in a mortgage?

Accepted Answer

A large lump-sum payment due at the end of a loan term that pays off the remaining balance

Answer

An extra payment made voluntarily to reduce principal

Answer

A monthly payment that increases each year

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A penalty payment for missing a scheduled payment

Question 4

What is 'debt-to-income ratio' (DTI) used for in mortgage lending?

Accepted Answer

Comparing a borrower's monthly debt obligations to their gross monthly income to assess repayment ability

Answer

Measuring how much of a borrower's home equity is used as collateral

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Calculating the property's value relative to similar homes in the area

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Determining how much interest has been paid versus principal

Question 5

What is a 'home equity line of credit' (HELOC)?

Accepted Answer

A revolving line of credit secured by the borrower's home equity that can be drawn and repaid repeatedly

Answer

A fixed-rate second mortgage paid out in a lump sum

Answer

A government program for first-time homebuyers

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A loan to cover closing costs on a new mortgage

Question 6

What is 'amortization' in the context of a mortgage?

Accepted Answer

The gradual repayment of a loan through scheduled payments that cover both principal and interest

Answer

The process of refinancing a loan to get a lower interest rate

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The appreciation of a home's value over the life of the loan

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The process of transferring a mortgage from one lender to another

Question 7

What is a 'non-conforming loan'?

Accepted Answer

A mortgage that does not meet the guidelines set by Fannie Mae or Freddie Mac for purchase

Answer

A mortgage with an unusual repayment schedule

Answer

A loan made without a formal appraisal

Answer

A mortgage issued without PMI requirements