Mortgage Mortgage Terms Question and Answers 2

Question 1

What does the term 'escrow' refer to in a mortgage context?

Accepted Answer

A third-party account that holds funds for taxes and insurance

Answer

The total amount of interest paid over the life of a loan

Answer

The percentage of the home's value used as a down payment

Answer

A penalty charged for paying off a mortgage early

Question 2

What is a 'balloon payment' in mortgage lending?

Accepted Answer

A large lump-sum payment due at the end of the loan term

Answer

A small additional payment made each month toward principal

Answer

The first payment made after closing on a mortgage

Answer

An extra fee charged when refinancing a loan

Question 3

What does 'loan-to-value ratio' (LTV) measure?

Accepted Answer

The ratio of the loan amount to the appraised value of the property

Answer

The borrower's monthly debt compared to monthly income

Answer

The total interest paid compared to the original loan balance

Answer

The percentage of the loan that has been paid off

Question 4

What is 'private mortgage insurance' (PMI) typically required for?

Accepted Answer

Conventional loans with a down payment of less than 20%

Answer

All government-backed FHA loans regardless of down payment

Answer

Any mortgage with a fixed interest rate

Answer

Loans taken out by first-time homebuyers only

Question 5

What does the term 'amortization' describe in a mortgage?

Accepted Answer

The process of gradually paying off a loan through scheduled payments of principal and interest

Answer

The initial period during which only interest payments are required

Answer

The act of transferring a mortgage from one lender to another

Answer

The adjustment of an interest rate based on market conditions

Question 6

What is a 'subordination clause' in a mortgage agreement?

Accepted Answer

A provision that establishes lien priority among multiple mortgages

Answer

A clause that allows the borrower to skip one payment per year

Answer

A requirement that the borrower maintain homeowners insurance

Answer

A penalty imposed when a borrower defaults on the loan