Mortgage Terms 4 â Questions and Answers
Question 1: What is a 'short sale' in real estate and mortgage terms?
- A home sold within 30 days of listing
- Selling a property for less than the outstanding mortgage balance with lender approval (Correct answer)
- A cash purchase requiring no mortgage
- A sale between family members at a discounted price
Correct answer: Selling a property for less than the outstanding mortgage balance with lender approval
A short sale occurs when a lender agrees to accept the sale proceeds of a property even though the amount is less than the remaining mortgage balance, typically to avoid foreclosure.
Question 2: What is 'mortgage forbearance'?
- A permanent reduction in a mortgage's interest rate
- A temporary pause or reduction of mortgage payments granted by the lender during financial hardship (Correct answer)
- The transfer of a mortgage to a new borrower
- A penalty waiver for late mortgage payments
Correct answer: A temporary pause or reduction of mortgage payments granted by the lender during financial hardship
Mortgage forbearance is an agreement between lender and borrower that temporarily suspends or reduces payments during periods of financial hardship, with repayment arranged afterward.
Question 3: What does the term 'assumable mortgage' mean?
- A mortgage that automatically renews at the end of its term
- A mortgage that can be transferred from the seller to the buyer, who takes over the existing loan terms (Correct answer)
- A mortgage assumed to be risk-free by the lender
- A loan that requires no income verification
Correct answer: A mortgage that can be transferred from the seller to the buyer, who takes over the existing loan terms
An assumable mortgage allows a homebuyer to take over the seller's existing mortgage, including its interest rate and remaining balance, subject to lender approval.
Question 4: What is a 'deed of trust' as opposed to a mortgage?
- A document that transfers full ownership of property to the lender immediately
- A three-party security instrument used in some states where a trustee holds title until the loan is repaid (Correct answer)
- A legal agreement that waives the lender's right to foreclose
- A title document used exclusively for commercial properties
Correct answer: A three-party security instrument used in some states where a trustee holds title until the loan is repaid
A deed of trust involves three partiesâborrower, lender, and a neutral trusteeâwho holds legal title to the property as security until the loan is paid off, used instead of a traditional mortgage in many states.
Question 5: What is a 'piggyback loan' in mortgage financing?
- A mortgage that automatically increases in size over time
- A second mortgage taken simultaneously with the first to avoid PMI or cover the down payment (Correct answer)
- A government-backed loan added on top of a conventional mortgage
- A loan co-signed by a family member to help qualify
Correct answer: A second mortgage taken simultaneously with the first to avoid PMI or cover the down payment
A piggyback loan is a second mortgage taken at the same time as the first, commonly structured as 80/10/10 to avoid PMI when the borrower has only 10% down.
Question 6: What is 'predatory lending' in the mortgage industry?
- Lending money at competitive rates to attract borrowers from other banks
- Unfair, deceptive, or abusive loan terms and practices that exploit borrowers, especially vulnerable ones (Correct answer)
- Aggressive marketing of mortgage products to new homebuyers
- Lending to borrowers with high credit scores who don't need financial assistance
Correct answer: Unfair, deceptive, or abusive loan terms and practices that exploit borrowers, especially vulnerable ones
Predatory lending involves deceptive or exploitative practicesâsuch as excessive fees, inflated rates, or misleading termsâthat harm borrowers, often targeting those with limited financial knowledge.
Question 7: What is 'equity stripping'?
- The gradual increase in home equity through mortgage payments
- A predatory practice of loading a property with debt to drain the owner's home equity (Correct answer)
- The legal process of dividing property equity in a divorce
- Refinancing to pull equity out for home improvements
Correct answer: A predatory practice of loading a property with debt to drain the owner's home equity
Equity stripping is a predatory tactic where lenders or investors burden a property with excessive debtâoften through high-fee refinancingâleaving the homeowner with little or no equity.
Mortgage Terms 4
What is a 'short sale' in real estate and mortgage terms?