Residential Mortgage

### 1. Is interest on home equity loans deductible for tax purposes? - [x] Yes, if the funds are used to buy, build, or substantially improve the home. - [ ] No, home equity loan interest is never deductible. - [ ] Only for the first $250,000 borrowed. - [ ] Only if the home loan is more than $1 million. > **Explanation:** For home equity loans, the interest is deductible up to $100,000 if the funds are used to buy, build, or substantially improve the home. ### 2. Which type of mortgage starts with a lower initial rate that may change periodically? - [ ] Fixed-Rate Mortgage - [x] Adjustable-Rate Mortgage - [ ] FHA Loan - [ ] VA Loan > **Explanation:** An Adjustable-Rate Mortgage (ARM) starts with a lower initial interest rate that may change periodically based on market conditions. ### 3. Private mortgage insurance (PMI) is typically required for loans with what characteristic? - [x] Down payment less than 20% of the home's value - [ ] Down payment over 20% of the home's value - [ ] Fixed-rate interest - [ ] Adjustable-rate interest > **Explanation:** PMI is required for conventional loans with a down payment of less than 20% of the home's value. ### 4. What is the maximum loan amount for tax-deductible interest on new residential mortgages (as of recent tax laws)? - [ ] $500,000 - [ ] $950,000 - [x] $750,000 - [ ] $1,250,000 > **Explanation:** Interest on residential mortgages is deductible for loans up to $750,000 under current tax laws. ### 5. What serves as collateral in a residential mortgage? - [ ] The borrower's income - [ ] The borrower's car - [x] The property being purchased - [ ] A third-party guarantee > **Explanation:** The property being purchased serves as collateral in a residential mortgage. ### 6. Why might a homeowner choose to refinance their mortgage? - [ ] To increase monthly payments - [x] To take advantage of lower interest rates - [ ] To extend the loan term to 50 years - [ ] To avoid paying property taxes > **Explanation:** Homeowners often refinance their mortgages to benefit from lower interest rates, change their loan type, or access home equity. ### 7. What is meant by the term 'amortization'? - [x] The process of gradually paying off a loan through regular, scheduled payments - [ ] The initial down payment made on a mortgage - [ ] The increase in home value over time - [ ] The process of issuing a new mortgage > **Explanation:** Amortization refers to the gradual repayment of the loan through regular, scheduled principal and interest payments over a set period. ### 8. Which borrower demographic can exclusively access VA loans? - [x] Veterans and service members - [ ] First-time home buyers - [ ] Homeowners with less than 20% equity - [ ] Borrowers refinancing their mortgage > **Explanation:** VA loans are available exclusively to veterans, service members, and their families, featuring benefits like no down payment. ### 9. What kind of rate does a fixed-rate mortgage offer? - [x] Interest rate and monthly payments that remain constant for the entire term - [ ] Interest rate that fluctuates based on the market - [ ] Initial low rate that increases after a few years - [ ] Rate that changes annually > **Explanation:** A fixed-rate mortgage offers an interest rate and monthly payments that remain constant throughout the loan term. ### 10. What is an FHA loan? - [ ] A loan requiring no down payment - [x] A mortgage insured by the Federal Housing Administration with typically lower credit score and down payment requirements - [ ] A loan offered only for second homes - [ ] A high-value loan exceeding conforming loan limits > **Explanation:** An FHA loan is insured by the Federal Housing Administration and is designed to help individuals with lower credit scores and down payments qualify for a mortgage.