FP511 MODULE 3 UPDATE |COMPREHENSIVE FREQUENT MOST-TESTED QUESTIONS AND
VERIFIED ANSWERS/SOLUTIONS|GET IT 100% ACCURATE!!
Mortgage insurance
A policy that protects lenders against losses that result from defaults on home mortgages
- FHA requirements include this primarily for borrowers making a down payment of less
than 20%.
Veterans Administration (VA) loans
Feature the same federal guarantee of repayment as that for FHA mortgages, but VA
mortgages are for service members and veterans of the U.S. armed services, their spouses,
and other eligible beneficiaries.
- An even more favorable attribute of the VA mortgage is that, in certain cases, no initial
down payment is required; in other words, the entire purchase price can be borrowed. In
addition, no mortgage insurance is required.
Conventional mortgage loans or conforming loans
those made by commercial lenders in the private sector.
jumbo loans or nonconforming loans
Loans above the conforming loan limit
- May also be called subprime loans and have higher down payment and/or higher interest
rate requirements. - Loans for those with damaged credit may also be considered
nonconforming.
Fixed-rate mortgages
- Have a level interest rate for the term of the loan and a fixed payment amortization
schedule.
adjustable-rate mortgages (ARMs),
, the interest rate and payment may change every month, quarter, year, three years, or five
years.
- Interest rate changes are usually tied to a specific index such as the one-year London
Interbank Offered Rate (LIBOR).
negative amortization
- ARMs can allow this to occur.
- This is the case when the agreed-upon monthly payment is less than the accruing interest
charges and unpaid interest is added to the mortgage balance, increasing the debt.
Client consideration for an ARM
- A client who wants lower initial monthly payments and does not anticipate remaining in the
home for a long time
interest-only mortgage
- The homeowner tries to keep the mortgage payment at a minimum while hoping that the
fair market value of the home will increase so that the principal amount will be paid off by
the sale proceeds.
- should be executed only by relatively risk-aggressive homeowners.
balloon mortgage
- A mortgage in which the borrower makes fixed payments, which are based upon the
established interest rate for a long-term mortgage.
- However, payments are made only for a short duration—frequently five or seven years—
and then the borrower is required to pay off the remainder of the mortgage in a lump sum.
When would a balloon mortgage be a good idea for a client?
- works well for clients purchasing homes during high interest rate periods who want to
refinance when rates drop.
- It also works well for those with enough invested assets to finance the house without
borrowing, or those who have access to family loans when the period ends and rates have
not dropped.
VERIFIED ANSWERS/SOLUTIONS|GET IT 100% ACCURATE!!
Mortgage insurance
A policy that protects lenders against losses that result from defaults on home mortgages
- FHA requirements include this primarily for borrowers making a down payment of less
than 20%.
Veterans Administration (VA) loans
Feature the same federal guarantee of repayment as that for FHA mortgages, but VA
mortgages are for service members and veterans of the U.S. armed services, their spouses,
and other eligible beneficiaries.
- An even more favorable attribute of the VA mortgage is that, in certain cases, no initial
down payment is required; in other words, the entire purchase price can be borrowed. In
addition, no mortgage insurance is required.
Conventional mortgage loans or conforming loans
those made by commercial lenders in the private sector.
jumbo loans or nonconforming loans
Loans above the conforming loan limit
- May also be called subprime loans and have higher down payment and/or higher interest
rate requirements. - Loans for those with damaged credit may also be considered
nonconforming.
Fixed-rate mortgages
- Have a level interest rate for the term of the loan and a fixed payment amortization
schedule.
adjustable-rate mortgages (ARMs),
, the interest rate and payment may change every month, quarter, year, three years, or five
years.
- Interest rate changes are usually tied to a specific index such as the one-year London
Interbank Offered Rate (LIBOR).
negative amortization
- ARMs can allow this to occur.
- This is the case when the agreed-upon monthly payment is less than the accruing interest
charges and unpaid interest is added to the mortgage balance, increasing the debt.
Client consideration for an ARM
- A client who wants lower initial monthly payments and does not anticipate remaining in the
home for a long time
interest-only mortgage
- The homeowner tries to keep the mortgage payment at a minimum while hoping that the
fair market value of the home will increase so that the principal amount will be paid off by
the sale proceeds.
- should be executed only by relatively risk-aggressive homeowners.
balloon mortgage
- A mortgage in which the borrower makes fixed payments, which are based upon the
established interest rate for a long-term mortgage.
- However, payments are made only for a short duration—frequently five or seven years—
and then the borrower is required to pay off the remainder of the mortgage in a lump sum.
When would a balloon mortgage be a good idea for a client?
- works well for clients purchasing homes during high interest rate periods who want to
refinance when rates drop.
- It also works well for those with enough invested assets to finance the house without
borrowing, or those who have access to family loans when the period ends and rates have
not dropped.
