Real Estate Financing Flashcards

A buyer obtains a loan where the interest rate adjusts periodically based on a market index. What type of loan is this?

Answer: Adjustable-rate mortgage (ARM)

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

Which federal law requires lenders to disclose the Annual Percentage Rate (APR) to borrowers?

Answer: Truth in Lending Act (TILA)

The Truth in Lending Act (TILA) mandates that lenders disclose the APR and total cost of credit to borrowers.

A homeowner borrows $50,000 using their home's equity as collateral to fund a renovation. This is best described as a:

Answer: Home equity loan

A home equity loan allows homeowners to borrow against the equity built up in their property.

What is the primary purpose of private mortgage insurance (PMI)?

Answer: To protect the lender if the borrower defaults

PMI protects the lender — not the borrower — in the event the borrower defaults on the loan.

A mortgage where the monthly payment does not fully amortize the loan over its term, resulting in a large final payment, is called a:

Answer: Balloon mortgage

A balloon mortgage has a large lump-sum payment due at the end of the loan term because monthly payments don't fully pay off the balance.

Under the Equal Credit Opportunity Act (ECOA), a lender may NOT discriminate based on which of the following?

Answer: Marital status

ECOA prohibits credit discrimination based on marital status, race, sex, religion, national origin, age, or receipt of public assistance.

What is the loan-to-value (LTV) ratio for a property appraised at $200,000 with a $160,000 loan?

Answer: 80%

LTV = loan amount ÷ appraised value = $160,000 ÷ $200,000 = 80%.