SAFE General Mortgage Knowledge 5

Question 1

What is 'points' in the context of mortgage lending?

Accepted Answer

Prepaid interest equal to 1% of the loan amount

Answer

Each point equals 1% of the loan amount and represents prepaid interest paid upfront to reduce the interest rate.

Question 2

A borrower wants to refinance to lower their monthly payment without resetting the loan term significantly. Which option is most appropriate?

Accepted Answer

Rate-and-term refinance

Answer

A rate-and-term refinance changes only the interest rate and/or loan term without taking out additional cash.

Question 3

What is the 'annual percentage rate' (APR) designed to reflect?

Accepted Answer

The total cost of credit, including fees, expressed as a yearly rate

Answer

APR includes the interest rate plus fees and other costs, giving borrowers a broader measure of the loan's true annual cost.

Question 4

Which of the following best describes 'amortization'?

Accepted Answer

Gradually paying off a loan through scheduled principal and interest payments

Answer

Amortization is the process of paying down a loan over time through regular payments that cover both principal and interest.

Question 5

A homebuyer is purchasing a $400,000 property with a $60,000 down payment. What is the LTV ratio?

Accepted Answer

85%

Answer

LTV = loan amount / property value = $340,000 / $400,000 = 85%.

(SAFE) Certified Secure and Fair Enforcement Mortgage Loan Originator Practice Test