NMLS Mortgage Finance and Calculations 3 — Questions and Answers
Question 1: 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?
- $123 (Correct answer)
- $247
- $500
- $1,000
Correct 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).
Question 2: What term describes paying off a loan through scheduled periodic payments of principal and interest?
- Depreciation
- Amortization (Correct answer)
- Capitalization
- Hypothecation
Correct answer: Amortization
Amortization is the process of gradually paying down a loan balance through regular payments.
Question 3: 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?
- 5%
- 6% (Correct answer)
- 9%
- 7%
Correct answer: 6%
First adjustment cap of 2% limits the rate change to 4% + 2% = 6%.
Question 4: When a lender 'buys down' a borrower's rate using points, what is the general rule of thumb for rate reduction per point?
- 0.125%
- 0.25% (Correct answer)
- 0.50%
- 1.00%
Correct answer: 0.25%
The common rule of thumb is that one discount point reduces the interest rate by approximately 0.25%.
Question 5: 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?
- The rate adjusts automatically
- The borrower pays the remaining balance in full (Correct answer)
- The loan converts to a fixed rate
- Payments stop and the note is forgiven
Correct 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.
Question 6: 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?
- 70%
- 80% (Correct answer)
- 75%
- 90%
Correct answer: 80%
CLTV = ($350,000 + $50,000) / $500,000 = $400,000 / $500,000 = 80%.
Question 7: Under Regulation Z, when must a lender deliver the Loan Estimate (LE) to the borrower?
- At closing
- Within 3 business days of receiving a completed application (Correct answer)
- Within 7 business days before consummation
- Within 1 business day of application
Correct 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.
NMLS Mortgage Finance and Calculations 3
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?