Financing

Question 1

What is a mortgage?

Answer 1

A pledge of real property as security for a loan.

Question 2

What is a promissory note?

Answer 2

A borrower’s written promise to repay a loan.

Question 3

What is principal?

Answer 3

The amount borrowed or remaining unpaid on a loan.

Question 4

What is interest?

Answer 4

The cost of borrowing money, expressed as a percentage.

Question 5

What is amortization?

Answer 5

Gradual repayment of loan through regular payments of principal + interest.

Question 6

What is a fixed-rate mortgage?

Answer 6

Loan with an interest rate that remains the same over the term.

Question 7

What is an adjustable-rate mortgage (ARM)?

Answer 7

Loan where interest rate changes based on market index.

Question 8

What is a balloon mortgage?

Answer 8

Loan with smaller regular payments and a large lump sum at end.

Question 9

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

Answer 9

Ratio of loan amount to appraised value (or purchase price, whichever is less).

Question 10

What is prepayment penalty?

Answer 10

Fee charged for early repayment of loan (prohibited in NY for residential loans under $250k).

Question 11

What is escrow account?

Answer 11

Account holding borrower’s property tax and insurance payments.

Question 12

What is private mortgage insurance (PMI)?

Answer 12

Insurance protecting lender when borrower has <20% down payment.

Question 13

What is discount point?

Answer 13

Fee paid to lower interest rate; 1 point = 1% of loan amount.

Question 14

What is underwriting?

Answer 14

Lender’s process of evaluating borrower risk and property value.

Question 15

What is mortgage broker?

Answer 15

Intermediary who matches borrower with lender but does not lend money.

Question 16

What is mortgage banker?

Answer 16

Lender who originates and funds loans directly.

Question 17

What is home equity loan?

Answer 17

Loan using home equity as collateral (lump sum).

Question 18

What is home equity line of credit (HELOC)?

Answer 18

Revolving credit line secured by home equity.

Question 19

What is reverse mortgage?

Answer 19

Loan for seniors allowing them to convert home equity into cash (repaid upon death/sale).

Question 20

What is FHA loan?

Answer 20

Government-insured loan with low down payment.

Question 21

What is VA loan?

Answer 21

Loan for eligible veterans with no down payment required.

Question 22

What is conventional loan?

Answer 22

Loan not insured or guaranteed by government.

Question 23

What is subprime mortgage?

Answer 23

Loan offered to borrowers with weak credit — higher risk and interest.

Question 24

What is foreclosure?

Answer 24

Legal process where lender seizes property after loan default.

Question 25

What is deed in lieu of foreclosure?

Answer 25

Borrower voluntarily transfers title to lender to avoid foreclosure.

Question 26

What is mortgage assumption?

Answer 26

Buyer takes over seller’s existing mortgage payments.

Question 27

What is refinancing?

Answer 27

Replacing old mortgage with a new one (to lower rate, change term, etc.).

Question 28

What is secondary financing?

Answer 28

Second mortgage on property (junior lien).

Question 29

What is underwriting ratio?

Answer 29

Percentage of borrower’s gross income used to pay debts — used to qualify borrower.