General Mortgage Knowledge Flashcards

Which type of mortgage index is directly tied to U.S. Treasury securities?

Answer: Constant Maturity Treasury (CMT)

The Constant Maturity Treasury (CMT) index is based on the yield of U.S. Treasury securities and is commonly used to set ARM rates.

A borrower has a 5/1 ARM. What does the '1' represent?

Answer: The rate can adjust every 1 year after the initial period

In a 5/1 ARM, the '5' is the initial fixed-rate period in years and the '1' means the rate adjusts every one year thereafter.

What is the primary purpose of an escrow account in a mortgage?

Answer: To collect monthly funds for taxes and insurance

An escrow account collects portions of monthly payments to cover property taxes and homeowner's insurance when they come due.

Under RESPA, which of the following is considered a 'controlled business arrangement'?

Answer: A referral between affiliated companies where compensation is paid

A controlled business arrangement (AfBA) occurs when a settlement service provider refers consumers to an affiliated company and receives compensation for that referral.

What does 'loan-to-value ratio' (LTV) measure?

Answer: Loan amount divided by the appraised property value

LTV is calculated by dividing the loan amount by the appraised value (or purchase price, whichever is lower), expressed as a percentage.

Which mortgage product allows the borrower to make interest-only payments for a specified period?

Answer: Interest-only mortgage

An interest-only mortgage allows borrowers to pay only the interest portion for an initial period, after which payments include both principal and interest.

What is the maximum loan amount for a conforming conventional mortgage in most U.S. counties for a single-family home in 2024?

Answer: $766,550

The FHFA set the 2024 conforming loan limit for most U.S. counties at $766,550 for a single-family home.