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Wealth Building with Mortgages Flashcards

7 cards from real CMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Wealth Building with Mortgages flashcards as text

  1. A homeowner uses a cash-out refinance to fund a rental property down payment. What is the primary wealth-building advantage of this strategy?

    Answer: Leverages existing equity to acquire an income-producing asset

    Cash-out refinancing allows homeowners to leverage built-up equity to fund income-producing investments, multiplying wealth-building potential.

  2. Which mortgage strategy involves making one extra payment per year to significantly reduce total interest paid over the loan term?

    Answer: Biweekly payment plan

    A biweekly payment plan results in 26 half-payments (13 full payments) per year, reducing principal faster and saving substantial interest.

  3. An investor purchases a duplex with an FHA loan and lives in one unit while renting the other. This strategy is commonly called:

    Answer: House hacking

    House hacking involves living in one unit of a multi-family property while renting the others to offset or eliminate housing costs.

  4. What does the debt service coverage ratio (DSCR) measure in investment property lending?

    Answer: The property's net operating income relative to its debt obligations

    DSCR measures whether a property generates enough income to cover its debt payments, calculated as NOI divided by total debt service.

  5. A homeowner accelerates mortgage payoff by applying annual bonuses directly to principal. This primarily builds wealth by:

    Answer: Reducing total interest paid and building equity more quickly

    Applying lump sums to principal reduces the outstanding balance, shortening the loan term and significantly decreasing total interest costs.

  6. Which type of mortgage product offers wealth-building potential through an adjustable rate that may decrease if market rates fall?

    Answer: Adjustable-rate mortgage (ARM)

    ARMs can benefit borrowers when rates decline, potentially reducing monthly payments and freeing capital for other investments.

  7. When using the BRRRR strategy, what does the final 'R' stand for?

    Answer: Repeat

    BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat — the final step is to repeat the process using the refinanced capital.