RES Real Estate Finance & Mortgages 2

Question 1

What is a mortgage point?

Accepted Answer

A fee equal to 1% of the loan amount paid upfront to reduce the interest rate

Answer

Each discount point costs 1% of the loan amount and typically reduces the interest rate by about 0.25%. Paying points (buying down the rate) can save money over the life of the loan if the borrower stays long enough.

Question 2

What is a home equity line of credit (HELOC)?

Accepted Answer

A revolving credit line secured by the borrower's home equity that can be drawn on as needed

Answer

A HELOC allows homeowners to borrow against their accumulated home equity using a revolving credit line, similar to a credit card. Interest is paid only on the amount borrowed, not the full credit limit.

Question 3

What is a debt-to-income (DTI) ratio and why do lenders use it?

Accepted Answer

The percentage of monthly gross income that goes toward debt payments, used to assess a borrower's ability to manage mortgage payments

Answer

DTI compares monthly debt obligations to gross monthly income. Lenders typically require a DTI below 43-50% to ensure borrowers can comfortably manage mortgage payments alongside other debts.

Question 4

What is refinancing a mortgage?

Accepted Answer

Replacing an existing mortgage with a new one, typically to obtain a lower interest rate or different terms

Answer

Refinancing pays off the existing mortgage with a new loan, often to secure a lower rate, change the loan term, switch from ARM to fixed-rate, or access equity through a cash-out refinance.

Question 5

What triggers a foreclosure?

Accepted Answer

The borrower's failure to make mortgage payments, leading the lender to take legal action to seize and sell the property

Answer

Foreclosure occurs when a borrower defaults on mortgage payments. The lender initiates legal proceedings to reclaim the property, sell it, and recover the outstanding loan balance.

RES - Real Estate Salesperson Exam Practice Test

RES - Real Estate Salesperson Exam Practice Test

RES Real Estate Finance & Mortgages 2