Mortgage Terms 5

Question 1

What is a 'rate lock' in mortgage lending?

Accepted Answer

A lender's guarantee to hold a specific interest rate for a set period while the loan is being processed

Answer

A rate lock is a commitment by the lender to hold an agreed interest rate for a specified period (typically 30–60 days) while the loan is processed, protecting the borrower from rate increases.

Question 2

What is 'mortgage seasoning'?

Accepted Answer

The length of time a borrower has held a mortgage, often required before refinancing or cashing out equity

Answer

Mortgage seasoning refers to the minimum time a borrower must have held a mortgage before being eligible for certain transactions like cash-out refinancing, typically 6–12 months.

Question 3

What is a 'recourse loan' in mortgage lending?

Accepted Answer

A loan where the lender can pursue the borrower's personal assets beyond the collateral if they default

Answer

With a recourse loan, if foreclosure proceeds don't cover the remaining balance, the lender can pursue a deficiency judgment against the borrower's other assets.

Question 4

What is a 'no-doc' or 'stated income' mortgage?

Accepted Answer

A loan where borrowers state their income without providing traditional documentation to verify it

Answer

Stated income (no-doc) mortgages allow borrowers to declare their income without standard verification documents; they were common before the 2008 financial crisis but are now heavily regulated.

Question 5

What is the 'primary mortgage market'?

Accepted Answer

The market where mortgage loans are originated directly between lenders and borrowers

Answer

The primary mortgage market is where borrowers and mortgage lenders come together to originate loans—this is where you apply and receive a mortgage.

Mortgage Practice Test

Mortgage Practice Test

Mortgage Terms 5