Real Estate Finance & Mortgages Flashcards
6 cards from real RES practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Real Estate Finance & Mortgages flashcards as text
What is a mortgage point?
Answer: A fee equal to 1% of the loan amount paid upfront to reduce the interest rate
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.
What is a home equity line of credit (HELOC)?
Answer: A revolving credit line secured by the borrower's home equity that can be drawn on as needed
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.
What is a debt-to-income (DTI) ratio and why do lenders use it?
Answer: The percentage of monthly gross income that goes toward debt payments, used to assess a borrower's ability to manage mortgage payments
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.
What is refinancing a mortgage?
Answer: Replacing an existing mortgage with a new one, typically to obtain a lower interest rate or different terms
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.
What triggers a foreclosure?
Answer: The borrower's failure to make mortgage payments, leading the lender to take legal action to seize and sell the property
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.
What is an appraisal and why is it required for a mortgage?
Answer: A professional estimate of a property's market value required by lenders to ensure the property is worth the loan amount
An appraisal is an independent valuation by a licensed appraiser. Lenders require it to confirm the property's value supports the loan amount, protecting against lending more than the property is worth.