Terms 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 Terms flashcards as text
What is an 'escrow account' in mortgage servicing?
Answer: An account managed by the servicer to collect and pay property taxes and homeowner's insurance
An escrow account held by the mortgage servicer collects monthly amounts from the borrower to cover property taxes and homeowner's insurance when they become due.
What does 'underwater' mean when referring to a mortgage?
Answer: The borrower owes more on the mortgage than the home is currently worth
A mortgage is 'underwater' (also called negative equity) when the outstanding loan balance exceeds the current market value of the property.
What is a 'balloon payment' in a mortgage?
Answer: A large lump-sum payment due at the end of a loan term that pays off the remaining balance
A balloon payment is a large final payment due at the end of a balloon mortgage term, representing the remaining principal that was not fully amortized.
What is 'debt-to-income ratio' (DTI) used for in mortgage lending?
Answer: Comparing a borrower's monthly debt obligations to their gross monthly income to assess repayment ability
DTI ratio measures the percentage of a borrower's gross monthly income that goes toward paying debts, helping lenders evaluate whether the borrower can manage additional debt.
What is a 'home equity line of credit' (HELOC)?
Answer: A revolving line of credit secured by the borrower's home equity that can be drawn and repaid repeatedly
A HELOC is a revolving credit line secured by home equity, allowing borrowers to draw funds up to a set limit during a draw period and repay them, similar to a credit card.
What is 'amortization' in the context of a mortgage?
Answer: The gradual repayment of a loan through scheduled payments that cover both principal and interest
Amortization is the process by which a loan is paid off over time through regular payments that are allocated between principal reduction and interest charges.
What is a 'non-conforming loan'?
Answer: A mortgage that does not meet the guidelines set by Fannie Mae or Freddie Mac for purchase
Non-conforming loans fail to meet Fannie Mae or Freddie Mac purchase guidelines—typically due to loan size (jumbo), borrower creditworthiness, or non-standard property types.