General Mortgage Knowledge Flashcards

What is the purpose of an escrow account in a mortgage?

Answer: To collect and pay property taxes and insurance on the borrower's behalf

Escrow accounts collect monthly contributions from borrowers so the lender can pay property taxes and homeowner's insurance when they come due.

What does PMI stand for in the context of a mortgage?

Answer: Private Mortgage Insurance

PMI (Private Mortgage Insurance) protects the lender if the borrower defaults and is typically required when the down payment is less than 20%.

Which loan type is insured by the Federal Housing Administration and typically requires a lower down payment?

Answer: FHA loan

FHA loans are government-backed mortgages that allow down payments as low as 3.5% and are more accessible to borrowers with lower credit scores.

What is a balloon mortgage?

Answer: A loan with low or interest-only payments followed by a large lump-sum payment at the end

A balloon mortgage features relatively low initial payments but requires a large lump-sum payment (the 'balloon') when the loan term ends.

What is the 'principal' of a mortgage loan?

Answer: The original amount borrowed, excluding interest

Principal refers to the original loan amount borrowed, which decreases as payments are made over time.

What does 'amortization' mean in mortgage terms?

Answer: Paying off a loan through regular scheduled payments over time

Amortization is the gradual repayment of a mortgage through fixed periodic payments that cover both principal and interest.

Which document gives the borrower a detailed breakdown of all closing costs at least three business days before closing?

Answer: Closing Disclosure

The Closing Disclosure, required under TRID rules, provides a final itemized list of loan terms and closing costs at least three business days before the closing date.