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Real Estate Financing MCQ Flashcards

7 cards from real PSI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Real Estate Financing MCQ flashcards as text

  1. What is the primary purpose of private mortgage insurance (PMI) on a conventional loan?

    Answer: It protects the lender against borrower default when LTV exceeds 80%

    PMI protects the lender—not the borrower—against financial loss if the borrower defaults when the loan-to-value ratio is above 80%.

  2. Under the Homeowners Protection Act, a borrower with a conventional loan can request cancellation of PMI when the LTV ratio reaches:

    Answer: 80%

    Borrowers can request PMI cancellation once the LTV reaches 80% based on original value; lenders must automatically cancel it at 78%.

  3. A mortgage that allows the interest rate to adjust periodically based on a market index is called a(n):

    Answer: Adjustable-rate mortgage (ARM)

    An adjustable-rate mortgage (ARM) has an interest rate that changes at set intervals based on a specified index plus a margin.

  4. Which type of mortgage is specifically designed for senior homeowners to convert home equity into cash without monthly payments?

    Answer: Reverse mortgage

    A reverse mortgage allows homeowners aged 62 or older to borrow against home equity; repayment is deferred until the borrower sells, moves, or dies.

  5. In real estate financing, what does the term 'amortization' refer to?

    Answer: The gradual repayment of a loan through scheduled principal and interest payments

    Amortization is the systematic reduction of a loan balance through periodic payments that cover both interest and principal.

  6. A lender quotes an interest rate of 6.5% but the annual percentage rate (APR) is 6.9%. What accounts for this difference?

    Answer: The APR includes the interest rate plus fees and costs associated with the loan

    APR expresses the true annual cost of borrowing by incorporating the interest rate plus loan fees (origination fees, discount points, etc.) into a single percentage.

  7. Which government-sponsored enterprise (GSE) purchases conforming conventional mortgages from lenders to provide liquidity to the secondary mortgage market?

    Answer: Fannie Mae

    Fannie Mae (FNMA) and Freddie Mac (FHLMC) are GSEs that buy conforming loans from lenders, replenishing lender funds and supporting the secondary market.