Take Credit Sesame’s quick quiz to test your mortgage knowledge if you are considering buying a home.
A mortgage is a loan used to purchase a property, with the property itself serving as collateral. Mortgages typically have fixed repayment terms ranging from 15 to 30 years. How good is your mortgage knowledge?
1. What is the most common type of mortgage?
A. Adjustable-rate mortgage (ARM)
B. Fixed-rate mortgage (FRM)
C. Interest-only mortgage
D. Reverse mortgage
2. What does PMI stand for in mortgage terms?
A. Private Mortgage Insurance
B. Property Management Insurance
C. Primary Mortgage Investment
D. Principal Mortgage Interest
3. What is an escrow account used for in mortgages?
A. Saving for a down payment
B. Paying off the mortgage early
C. Holding funds for property taxes and homeowners insurance
D. Investing in the housing market
4. What is a mortgage point in a mortgage?
A. A decimal point in the interest rate
B. A fee paid to lower the interest rate
C. A penalty for an early mortgage payoff
D. A type of mortgage insurance
5. What is the term for the total amount borrowed to purchase a home?
A. Principal
B. Interest
C. Equity
D. Appraisal
6. What is the purpose of an amortization schedule for a mortgage?
A. Determining the property value
B. Showing the monthly mortgage payments breakdown
C. Outlining the homeowner’s insurance coverage
D. Tracking the increase in property value
7. What is a pre-approval letter for a mortgage?
A. A guarantee that you will get a mortgage
B. An estimate of how much you can borrow
C. A document showing your credit score
D. A commitment to a specific mortgage rate
8. What is a mortgage default?
A. Paying off the mortgage early
B. Refinancing the mortgage
C. Failing to make mortgage payments
D. Selling the property
9. What is a mortgage refinance?
A. Selling the property and buying a new one
B. Obtaining a new mortgage to replace an existing one
C. Increasing the monthly mortgage payment
D. Adding a property to the mortgage
10. What is equity in a home?
A. The amount owed on the mortgage
B. The market value of the home
C. The difference between the market value and the mortgage balance
D. The property taxes owed on the home
Test your mortgage knowledge quiz ANSWERS
- B–Fixed-rate mortgages (FRMs) are the most common type in the US, offering consistent interest rates throughout the loan term.
- A–Private Mortgage Insurance (PMI) is often required for down payments of less than 20%.
- C–Escrow accounts hold funds for property taxes and homeowners insurance to ensure timely payments.
- B–Mortgage points are prepaid interest that can lower the overall interest rate.
- A–The principal is the initial amount borrowed.
- B–An amortization schedule outlines the breakdown of each mortgage payment into principal and interest.
- B–A pre-approval letter provides an estimate of the loan amount a borrower can qualify for.
- C–Mortgage default occurs when the borrower fails to make required payments.
- B–Refinancing involves obtaining a new mortgage to replace an existing one, often to secure a lower interest rate.
- C–Equity represents the homeowner’s ownership stake in the property, calculated as the difference between the market value and the mortgage balance.
If you enjoyed Test your mortgage knowledge you may like,
- 10 reasons for mortgage rejection
- How to get a mortgage with a 500 credit score
- Find the mortgage that you deserve
Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.
