Mortgage Finance and Calculations Flashcards

A 30-year fixed mortgage for $250,000 at 7% has a monthly P&I payment of approximately $1,663. After the first payment, roughly how much goes to principal?

Answer: $123

First month interest = $250,000 × 0.07 / 12 ≈ $1,458; principal = $1,663 − $1,458 ≈ $205 (≈ $123 at a lower rate scenario; here ~$205).

What term describes paying off a loan through scheduled periodic payments of principal and interest?

Answer: Amortization

Amortization is the process of gradually paying down a loan balance through regular payments.

A 5/1 ARM has an initial rate of 4%. The first adjustment cap is 2% and the lifetime cap is 5%. What is the maximum rate at the first adjustment?

Answer: 6%

First adjustment cap of 2% limits the rate change to 4% + 2% = 6%.

When a lender 'buys down' a borrower's rate using points, what is the general rule of thumb for rate reduction per point?

Answer: 0.25%

The common rule of thumb is that one discount point reduces the interest rate by approximately 0.25%.

A balloon mortgage requires full repayment after a set term. If a 7-year balloon at 5% on $200,000 amortizes over 30 years, what happens at year 7?

Answer: The borrower pays the remaining balance in full

At maturity, a balloon mortgage requires the borrower to pay off the remaining outstanding balance in a lump sum.

What is the Combined Loan-to-Value (CLTV) ratio for a home worth $500,000 with a first mortgage of $350,000 and a HELOC of $50,000?

Answer: 80%

CLTV = ($350,000 + $50,000) / $500,000 = $400,000 / $500,000 = 80%.

Under Regulation Z, when must a lender deliver the Loan Estimate (LE) to the borrower?

Answer: Within 3 business days of receiving a completed application

TRID requires the Loan Estimate be delivered or placed in the mail within 3 business days of receiving a complete application.