RES Real Estate Finance & Mortgages

Question 1

What is the difference between a fixed-rate and an adjustable-rate mortgage (ARM)?

Accepted Answer

A fixed-rate mortgage maintains the same interest rate throughout the loan; an ARM rate changes periodically based on market conditions

Answer

Fixed rates are always higher than adjustable rates

Answer

ARMs have no interest charges

Answer

They are the same type of loan with different names

Question 2

What is a loan-to-value (LTV) ratio?

Accepted Answer

The percentage of a property's value that is financed by the mortgage

Answer

The total amount of the monthly payment

Answer

The interest rate divided by the loan term

Answer

The ratio of the buyer's income to the loan amount

Question 3

What is private mortgage insurance (PMI)?

Accepted Answer

Insurance required when the down payment is less than 20%, protecting the lender against borrower default

Answer

Insurance that protects the homeowner's personal property

Answer

Flood insurance required in coastal areas

Answer

Title insurance protecting against ownership disputes

Question 4

What is amortization in mortgage lending?

Accepted Answer

The gradual repayment of a loan through scheduled payments that include both principal and interest

Answer

The process of refinancing a mortgage

Answer

The appreciation of property value over time

Answer

The depreciation of a building for tax purposes

Question 5

What is a pre-approval letter?

Accepted Answer

A lender's written commitment stating the maximum loan amount a buyer qualifies for based on verified financial information

Answer

A letter from the seller accepting an offer

Answer

A property appraisal report

Answer

A home inspection report

Question 6

What is the difference between a conventional loan and an FHA loan?

Accepted Answer

Conventional loans are not government-insured; FHA loans are insured by the Federal Housing Administration with lower down payment requirements

Answer

FHA loans have higher interest rates

Answer

Conventional loans are only for first-time buyers

Answer

There is no practical difference