NMLS SAFE EXAM KEY WORDS
5/1 Adjustable Rate Mortgage - Answer -A 5/1 adjustable rate mortgage (ARM) or 5-
year ARM is a mortgage loan where "5" is the number of years your initial interest rate
will stay fixed. The "1" represents how often your interest rate will adjust after the initial
five-year period ends. The most common fixed periods are 3, 5, 7, and 10 years and
"1," is the most common adjustment period. It's important to carefully read the contract
and ask questions if you're considering an ARM.
Ability-to-repay rule - Answer -The ability-to-repay rule is the reasonable and good faith
determination most mortgage lenders are required to make that you are able to pay
back the loan.
Balloon loan - Answer -For mortgages, a balloon loan means that the loan has a larger-
than-usual, one-time payment, typically at the end of the loan term. This one-time
payment is called a "balloon payment, and it is higher than your other payments,
sometimes much higher. If you cannot pay the balloon amount, you might have to
refinance, sell your home, or face foreclosure.
Bi-weekly payment - Answer -In a bi-weekly payment plan, the mortgage servicer is
collecting half of your monthly payment every two weeks, resulting in 26 payments over
the course of the year (totaling one extra monthly payment per year). By making
additional payments and applying your payments to the principal, you may be able to
pay off your loan early. Before choosing a bi-weekly payment, be sure to review your
loan terms to see if you will be subject to a prepayment penalty if you do so. Check if
your servicer charges any fees for a bi-weekly payment plan. You may be able to
accomplish the same goal without the fee by making an extra monthly mortgage
payment each year.
Closing Disclosure - Answer -A Closing Disclosure is a required five-page form that
provides final details about the mortgage loan you have selected. It includes the loan
terms, your projected monthly payments, and how much you will pay in fees and other
costs to get your mortgage.
Construction loan - Answer -A construction loan is usually a short-term loan that
provides funds to cover the cost of building or rehabilitating a home.
Conventional loan - Answer -A conventional loan is any mortgage loan that is not
insured or guaranteed by the government (such as under Federal Housing
Administration, Department of Veterans Affairs, or Department of Agriculture loan
programs).
Co-signer or co-borrower - Answer -A co-signer or co-borrower is someone who agrees
to take full responsibility to pay back a mortgage loan with you. This person is obligated
to pay any missed payments and even the full amount of the loan if you don't pay. Some
, mortgage programs distinguish a co-signer as someone who is not on the title and does
not have any ownership interest in the mortgaged home. Having a co-signer or co-
borrower on your mortgage loan gives your lender additional assurance that the loan
will be repaid. But your co-signer or co-borrower's credit record and finances are at risk
if you don't repay the loan.
Credit history - Answer -A credit history is a record of your credit accounts and your
history of paying on time as shown in your credit report. Consumer reporting
companies, also known as credit reporting companies, collect and update information
about your credit record and provide it to other businesses, which use it make decisions
about you. Credit reports have information about your credit activity and current credit
situation such as your loan paying history and the status of your credit accounts.
Credit report - Answer -A credit report is a statement that has information about your
credit activity and current credit situation such as loan paying history and the status of
your credit accounts. Lenders use your credit scores and the information on your credit
report to determine whether you qualify for a loan and what interest rate to offer you.
Adjustable Rate Mortgage (ARM) - Answer -An adjustable rate mortgage (ARM) is a
type of loan for which the interest rate can change, usually in relation to an index
interest rate. Your monthly payment will go up or down depending on the loan's
introductory period, rate caps, and the index interest rate. With an ARM, the interest
rate and monthly payment may start out lower than for a fixed-rate mortgage, but both
the interest rate and monthly payment can increase substantially.
Amortization - Answer -Amortization means paying off a loan with regular payments
over time, so that the amount you owe decreases with each payment. Most home loans
amortize, but some mortgage loans do not fully amortize, meaning that you would still
owe money after making all of your payments.
Some home loans allow payments that cover only the amount of interest due, or an
amount less than the interest due. If payments are less than the amount of interest due
each month, the mortgage balance will grow rather than decrease. This is called
negative amortization. Other loan programs that do not amortize fully during the loan
may require a large, lump sum "balloon" payment at the end of the loan term. Be sure
you know what type of loan you are getting.
Amount financed - Answer -It means the amount of money you are borrowing from the
lender, minus most of the upfront fees the lender is charging you.
Annual income - Answer -Annual income is a factor in a mortgage loan application and
generally refers to your total earned, pre-tax income over a year. Annual income may
include income from full-time or part-time work, self-employment, tips, commissions,
overtime, bonuses, or other sources. A lender will use information about your annual
income and your existing monthly debts to determine if you have the ability to repay the
loan.
5/1 Adjustable Rate Mortgage - Answer -A 5/1 adjustable rate mortgage (ARM) or 5-
year ARM is a mortgage loan where "5" is the number of years your initial interest rate
will stay fixed. The "1" represents how often your interest rate will adjust after the initial
five-year period ends. The most common fixed periods are 3, 5, 7, and 10 years and
"1," is the most common adjustment period. It's important to carefully read the contract
and ask questions if you're considering an ARM.
Ability-to-repay rule - Answer -The ability-to-repay rule is the reasonable and good faith
determination most mortgage lenders are required to make that you are able to pay
back the loan.
Balloon loan - Answer -For mortgages, a balloon loan means that the loan has a larger-
than-usual, one-time payment, typically at the end of the loan term. This one-time
payment is called a "balloon payment, and it is higher than your other payments,
sometimes much higher. If you cannot pay the balloon amount, you might have to
refinance, sell your home, or face foreclosure.
Bi-weekly payment - Answer -In a bi-weekly payment plan, the mortgage servicer is
collecting half of your monthly payment every two weeks, resulting in 26 payments over
the course of the year (totaling one extra monthly payment per year). By making
additional payments and applying your payments to the principal, you may be able to
pay off your loan early. Before choosing a bi-weekly payment, be sure to review your
loan terms to see if you will be subject to a prepayment penalty if you do so. Check if
your servicer charges any fees for a bi-weekly payment plan. You may be able to
accomplish the same goal without the fee by making an extra monthly mortgage
payment each year.
Closing Disclosure - Answer -A Closing Disclosure is a required five-page form that
provides final details about the mortgage loan you have selected. It includes the loan
terms, your projected monthly payments, and how much you will pay in fees and other
costs to get your mortgage.
Construction loan - Answer -A construction loan is usually a short-term loan that
provides funds to cover the cost of building or rehabilitating a home.
Conventional loan - Answer -A conventional loan is any mortgage loan that is not
insured or guaranteed by the government (such as under Federal Housing
Administration, Department of Veterans Affairs, or Department of Agriculture loan
programs).
Co-signer or co-borrower - Answer -A co-signer or co-borrower is someone who agrees
to take full responsibility to pay back a mortgage loan with you. This person is obligated
to pay any missed payments and even the full amount of the loan if you don't pay. Some
, mortgage programs distinguish a co-signer as someone who is not on the title and does
not have any ownership interest in the mortgaged home. Having a co-signer or co-
borrower on your mortgage loan gives your lender additional assurance that the loan
will be repaid. But your co-signer or co-borrower's credit record and finances are at risk
if you don't repay the loan.
Credit history - Answer -A credit history is a record of your credit accounts and your
history of paying on time as shown in your credit report. Consumer reporting
companies, also known as credit reporting companies, collect and update information
about your credit record and provide it to other businesses, which use it make decisions
about you. Credit reports have information about your credit activity and current credit
situation such as your loan paying history and the status of your credit accounts.
Credit report - Answer -A credit report is a statement that has information about your
credit activity and current credit situation such as loan paying history and the status of
your credit accounts. Lenders use your credit scores and the information on your credit
report to determine whether you qualify for a loan and what interest rate to offer you.
Adjustable Rate Mortgage (ARM) - Answer -An adjustable rate mortgage (ARM) is a
type of loan for which the interest rate can change, usually in relation to an index
interest rate. Your monthly payment will go up or down depending on the loan's
introductory period, rate caps, and the index interest rate. With an ARM, the interest
rate and monthly payment may start out lower than for a fixed-rate mortgage, but both
the interest rate and monthly payment can increase substantially.
Amortization - Answer -Amortization means paying off a loan with regular payments
over time, so that the amount you owe decreases with each payment. Most home loans
amortize, but some mortgage loans do not fully amortize, meaning that you would still
owe money after making all of your payments.
Some home loans allow payments that cover only the amount of interest due, or an
amount less than the interest due. If payments are less than the amount of interest due
each month, the mortgage balance will grow rather than decrease. This is called
negative amortization. Other loan programs that do not amortize fully during the loan
may require a large, lump sum "balloon" payment at the end of the loan term. Be sure
you know what type of loan you are getting.
Amount financed - Answer -It means the amount of money you are borrowing from the
lender, minus most of the upfront fees the lender is charging you.
Annual income - Answer -Annual income is a factor in a mortgage loan application and
generally refers to your total earned, pre-tax income over a year. Annual income may
include income from full-time or part-time work, self-employment, tips, commissions,
overtime, bonuses, or other sources. A lender will use information about your annual
income and your existing monthly debts to determine if you have the ability to repay the
loan.
