Mortgage Loan Originator Mortgage Products and Programs 2 — Questions and Answers
Question 1: What is a 'bridge loan' and when is it typically used?
- A government-backed loan for low-income borrowers
- A short-term loan used to bridge the gap between buying a new home and selling the existing one (Correct answer)
- A loan for purchasing commercial bridges
- A loan that connects two lenders on the same property
Correct answer: A short-term loan used to bridge the gap between buying a new home and selling the existing one
A bridge loan provides short-term financing allowing a homeowner to purchase a new property before selling their current one, using existing equity as collateral.
Question 2: What is the difference between a rate-and-term refinance and a cash-out refinance?
- Rate-and-term changes the lender; cash-out changes the term only
- Rate-and-term only modifies the rate or term; cash-out provides the borrower with proceeds above the payoff amount (Correct answer)
- Rate-and-term requires PMI; cash-out does not
- Rate-and-term is for primary residences only; cash-out is for investment properties
Correct answer: Rate-and-term only modifies the rate or term; cash-out provides the borrower with proceeds above the payoff amount
A rate-and-term refinance adjusts the interest rate or loan term without increasing the loan balance, while a cash-out refinance results in a new loan exceeding the existing balance with the difference paid to the borrower.
Question 3: A reverse mortgage is designed for homeowners who are at least:
- 55 years old
- 60 years old
- 62 years old (Correct answer)
- 65 years old
Correct answer: 62 years old
HECM (Home Equity Conversion Mortgage) reverse mortgages are available to homeowners aged 62 and older, allowing them to convert home equity into loan proceeds.
Question 4: Which type of mortgage loan allows the borrower to pay only the interest for an initial period before principal payments begin?
- Balloon mortgage
- Interest-only mortgage (Correct answer)
- Graduated payment mortgage
- Negative amortization mortgage
Correct answer: Interest-only mortgage
An interest-only mortgage allows the borrower to pay just the interest portion for an initial period, after which payments adjust to include both principal and interest.
Question 5: What is the purpose of mortgage discount points?
- To increase the loan amount
- To prepay interest upfront in exchange for a lower interest rate (Correct answer)
- To reduce the required down payment
- To extend the loan term
Correct answer: To prepay interest upfront in exchange for a lower interest rate
Discount points are prepaid interest paid at closing — typically 1% of the loan amount per point — to permanently reduce the interest rate on the mortgage.
Question 6: An assumable mortgage allows the buyer to:
- Skip the appraisal process
- Take over the seller's existing mortgage at its original terms (Correct answer)
- Assume the seller's credit history
- Avoid paying closing costs entirely
Correct answer: Take over the seller's existing mortgage at its original terms
An assumable mortgage allows a qualified buyer to take over the seller's existing loan at the original interest rate and terms, which can be advantageous in a rising rate environment.
Mortgage Loan Originator Mortgage Products and Programs 2
What is a 'bridge loan' and when is it typically used?