NMLS Mortgage Finance and Calculations 3

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?

Accepted Answer

$123

Answer

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?

Accepted Answer

Amortization

Answer

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?

Accepted Answer

6%

Answer

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?

Accepted Answer

0.25%

Answer

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?

Accepted Answer

The borrower pays the remaining balance in full

Answer

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

(NMLS) National Mortgage Licensing System Practice Test

(NMLS) National Mortgage Licensing System Practice Test

NMLS Mortgage Finance and Calculations 3