General Mortgage Knowledge Flashcards
7 cards from real Mortgage practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 General Mortgage Knowledge flashcards as text
What is a 'cash-out refinance'?
Answer: Replacing an existing mortgage with a larger loan and receiving the difference in cash
A cash-out refinance replaces the existing mortgage with a new, larger loan, and the borrower receives the difference between the two loan amounts as cash.
What does 'negative amortization' mean?
Answer: When monthly payments are insufficient to cover interest, causing the loan balance to increase
Negative amortization occurs when minimum payments don't cover the full interest due, so unpaid interest is added to the principal, increasing the overall balance.
Which entity sets the conforming loan limits that determine whether a mortgage qualifies for purchase by Fannie Mae or Freddie Mac?
Answer: The Federal Housing Finance Agency (FHFA)
The FHFA sets annual conforming loan limits, which determine the maximum loan size eligible for purchase by Fannie Mae and Freddie Mac.
In a mortgage context, what is 'seasoning'?
Answer: The length of time funds or a loan have been in place, often required before a refinance or sale
Seasoning refers to the required amount of time that must pass—for assets, a loan, or ownership—before certain transactions like refinancing or cash-out are permitted.
What is the primary risk to a lender of an interest-only mortgage?
Answer: The borrower builds no equity during the interest-only period, increasing default risk if values fall
During an interest-only period, no principal is paid, so the borrower accumulates no equity; if home values decline, they may owe more than the property is worth.
What is a 'due-on-sale' clause in a mortgage?
Answer: A clause that requires the full loan balance to be repaid when the property is sold or transferred
A due-on-sale (acceleration) clause requires the borrower to repay the full mortgage balance when the home is sold or ownership is transferred, preventing unauthorized assumptions.
Which government-sponsored enterprise (GSE) primarily focuses on securitizing mortgages originated by savings institutions rather than commercial banks?
Answer: Freddie Mac (FHLMC)
Freddie Mac (Federal Home Loan Mortgage Corporation) was created to expand the secondary mortgage market specifically for mortgages originated by thrifts and savings institutions.