Mortgage 101 Quiz

Posted by:  Service First
2018-03-08 11:28:02

Mortgage 101 Quiz

Are you a mortgage maven or a newbie? This quiz should give you an idea of how familiar you are with home lending!
 
 
 

Question 1:

An adjustable-rate mortgage will have the same payment throughout the life of the loan.

FALSE

As the name implies, an adjustable-rate mortgage (ARM) can have rates that change over time. These loans typically have a period with a fixed rate, but when that term expires, the rate – and your payment – can fluctuate. Adjustable-rate mortgages are ideal for those who anticipate an increase in income or who plan on staying in a home for a short period of time. Those wanting equal payments throughout the life of the loan will likely prefer a fixed-rate mortgage.


Question 2:

After mortgage pre-qualification, you should refrain from opening new accounts and making large purchases.

TRUE

A pre-qualification is a conditional approval for a mortgage and provides a reasonable estimate for the amount you can borrow. However, this doesn’t mean that you have your mortgage! Before the loan is funded, a final credit pull will be done, so any significant changes in your financial profile can have a negative effect on your final approval. 


Question 3:

A borrower can obtain a refinance without having to re-apply for a mortgage.

FALSE

When someone refinances, a new loan with new terms is obtained to replace the existing loan. There are several good reasons to refinance – perhaps your credit score has gone up and you think you can qualify for a lower interest rate, or you may need to extend the length of the loan to lower your monthly payments. In order to take advantage of new terms, though, you would follow the same lending process as you would with a new purchase – pre-qualification, underwriting, processing, and closing.


Question 4:

VA Loans are reserved for members of the Armed Forces and their qualified dependents.

TRUE

VA Loans are some of the most attractive mortgages out – they often have no or low down payment requirements and no minimum credit score requirement. However, because these loans are backed by the Department of Veterans Affairs, they are only available to members of the Armed Forces (active duty or retired) and some qualified dependents.


Question 5:

Mortgage Insurance is required for all loans.

FALSE

VA Loans are some of the most attractive mortgages out – they often have no or low down payment requirements and no minimum credit score requirement. However, because these loans are backed by the Department of Veterans Affairs, they are only available to members of the Armed Forces (active duty or retired) and some qualified dependents.


Question 6:

PITI represents payment, interest, taxes, and insurance.

FALSE

PITI is an acronym describing the main components of a mortgage payment

  • Principal – the original amount of your loan. Payments to principal reduce the balance of your mortgage. 

  • Interest – the cost you pay to your lender have a mortgage. As you near the end of your loan term, a higher percentage of your payment will apply to principal rather than interest.

  • Taxes – the amount of your property taxes, which is determined by your county’s appraisal district.

  • Insurance – the amount of your homeowner’s insurance policy


Question 7:

Mortgage interest is tax deductible.

TRUE

Aside from the emotional advantages of owning a home, there are financial ones. One of the largest benefits is that mortgage interest is tax deductible. As of 2018, those with mortgage debt of up to $750,000 can deduct up to $10,000 in interest.


Question 8:

All mortgages require a down payment of 10-20%.

FALSE

It’s often been a rule of thumb that a new homeowner should expect to pay around 20% toward a down payment for a home. However, there are a variety of loan types for different financial situations that require far less that that – 5%, 3%, even 0%! 

If saving for a down payment is still a challenge, there are home buying assistance programs offered that can help offset the cost. 


Question 9:

Higher credit scores generally tend to lead to higher interest rates.

FALSE

While a mortgage pre-qualification takes a borrower’s entire financial situation into account, a credit score is generally a quick gauge in determining what kind of interest rate one might qualify for. A higher score is usually a good indication that the borrower is a lower risk for default, which generally translates to a lower rate. However, every financial situation is unique, so a thorough review of your credit profile will allow a Loan Officer to give you specific details on what you can qualify for.


Question 10:

A 15-Year Mortgage will cost less than a 30-Year Mortgage.

TRUE

Although a 15-year mortgage will have a higher monthly payment than its 30-year counterpart, the total amount repaid will be considerably less.

Loan Term

   Monthly Payment   

   Total Paid (Life of Loan)   

    30-Year-Fixed1    

$885

$318,777

    15-Year-Fixed2    

$1,354

$243,738

1-Assumes 720 credit score, $200,000 purchase price, 10% down, 30-year fixed conventional in Texas, 4.25% rate / 4.425% APR  |  2-Assumes 720 credit score, $200,000 purchase price, 10% down, 15-year fixed conventional in Texas, 4.25% rate / 4.558% APR


 

So how'd you do? Feel free to share your result!

 

8-10 correct – You are a mortgage master! You understand how the loans work and how external forces can affect them. Great job!

5-7 correct – You know the basics, but could still use some assistance with some aspects.

0-4 correct – You’re new to mortgages! You may need some additional resources to get a full grasp of all of the concepts.

 

Regardless of how you scored, it’s a good idea to reach out to a Service First Loan Officer to discuss how we can help answer any additional questions you may have. Our dedicated team of highly-trained professionals would be happy to assist you every step of the way!

 
 
 
 
 
 
 
 
 
 
 
 
 
 

Categories:   tips


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