CMC Advanced Mortgage Products 2 — Questions and Answers
Question 1: A borrower wants a mortgage that allows interest-only payments for the first 10 years, then fully amortizes over the remaining 20 years. Which product best describes this structure?
- Interest-only ARM
- Interest-only fixed-rate mortgage (Correct answer)
- Negative amortization loan
- Graduated payment mortgage
Correct answer: Interest-only fixed-rate mortgage
An interest-only fixed-rate mortgage allows payments covering only interest for an initial period, after which the loan fully amortizes over the remaining term.
Question 2: Which of the following best characterizes a HELOC compared to a traditional home equity loan?
- HELOC has a fixed interest rate and lump-sum disbursement
- HELOC is a revolving line of credit with a variable rate (Correct answer)
- HELOC always requires full repayment within 5 years
- HELOC cannot be used for investment properties
Correct answer: HELOC is a revolving line of credit with a variable rate
A HELOC (Home Equity Line of Credit) functions as a revolving credit line, typically with a variable interest rate tied to the prime rate.
Question 3: A construction-to-permanent loan converts to a permanent mortgage upon completion. What is the primary advantage of this single-close structure?
- Lower construction interest rates than stand-alone construction loans
- Borrower only pays closing costs once instead of twice (Correct answer)
- No draws are required during the construction phase
- Permanent financing terms are negotiated after construction is complete
Correct answer: Borrower only pays closing costs once instead of twice
A single-close construction-to-permanent loan saves the borrower from paying two sets of closing costs by combining both phases into one transaction.
Question 4: What distinguishes a reverse mortgage from a traditional mortgage regarding monthly payments?
- Reverse mortgage requires higher monthly payments
- Reverse mortgage requires no monthly principal and interest payments from the borrower (Correct answer)
- Reverse mortgage payments are tax-deductible each year
- Reverse mortgage balances decrease over time as equity builds
Correct answer: Reverse mortgage requires no monthly principal and interest payments from the borrower
With a reverse mortgage, the borrower makes no monthly principal and interest payments; instead, the loan balance grows over time until the home is sold or the borrower leaves.
Question 5: A 5/1 ARM has an initial cap of 2%, periodic cap of 2%, and lifetime cap of 5%. If the start rate is 4%, what is the maximum rate at first adjustment?
- 5%
- 6% (Correct answer)
- 8%
- 9%
Correct answer: 6%
The initial cap of 2% limits the rate increase at the first adjustment, so the maximum rate is 4% + 2% = 6%.
Question 6: Which mortgage product is specifically designed for borrowers who want to purchase and renovate a property in a single loan?
- Home Equity Loan
- FHA 203(k) Rehabilitation Loan (Correct answer)
- Jumbo renovation loan
- Construction-only loan
Correct answer: FHA 203(k) Rehabilitation Loan
The FHA 203(k) loan allows borrowers to finance both the purchase and rehabilitation of a property under a single mortgage.
Question 7: A borrower obtains a piggyback loan structure (80-10-10). What does each number represent?
- First mortgage 80%, HELOC 10%, closing costs 10%
- First mortgage 80%, second mortgage 10%, down payment 10% (Correct answer)
- Down payment 80%, first mortgage 10%, second mortgage 10%
- First mortgage 80%, PMI reserve 10%, taxes 10%
Correct answer: First mortgage 80%, second mortgage 10%, down payment 10%
In an 80-10-10 piggyback structure, 80% is the first mortgage LTV, 10% is a second mortgage, and 10% is the borrower's down payment.
CMC Advanced Mortgage Products 2
A borrower wants a mortgage that allows interest-only payments for the first 10 years, then fully amortizes over the remaining 20 years.
Which product best describes this structure?