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Questions and Answers
What is a mortgage primarily secured by?
What is a mortgage primarily secured by?
Which of the following is NOT a characteristic of typical mortgages?
Which of the following is NOT a characteristic of typical mortgages?
What distinguishes a balloon payment mortgage from a fully amortized loan?
What distinguishes a balloon payment mortgage from a fully amortized loan?
Which type of mortgage would likely be issued to a borrower with a poor credit history?
Which type of mortgage would likely be issued to a borrower with a poor credit history?
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What is a key feature of adjustable-rate mortgages (ARMs)?
What is a key feature of adjustable-rate mortgages (ARMs)?
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What is the primary purpose of a farm mortgage?
What is the primary purpose of a farm mortgage?
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Which of the following mortgage types applies to homes that exceed conforming loan limits?
Which of the following mortgage types applies to homes that exceed conforming loan limits?
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What can describe an Alt-A mortgage?
What can describe an Alt-A mortgage?
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Study Notes
Mortgage Markets
- Mortgage market: A financial market where mortgage loans are originated, funded, traded, and invested.
- Mortgage: A loan secured by real estate collateral.
- Many mortgages, like residential mortgages, are securitized.
Types of Mortgages
- Home mortgages: Used to purchase residential properties (single-family).
- Multifamily dwelling mortgages: Used for larger residential properties (apartments, townhouses).
- Commercial mortgages: Used for commercial properties (office buildings, warehouses).
- Farm mortgages: Used for agricultural land and farms.
Mortgage Characteristics
- Mortgages are backed by collateral.
- Down payment is required by the financial institution as part of the agreement.
- Mortgages can be federally insured or conventional.
- Standard original maturity is 15 or 30 years.
- Amortized loan: Regular fixed payments of principal and interest structured to repay the loan by the maturity date.
- Balloon payment mortgage: Regular monthly payments cover only a portion of the principal or interest for a set period, with a large lump sum payment (balloon payment) due at the end.
- Fixed-rate mortgage: Interest rate remains the same throughout the loan term.
- Adjustable-rate mortgage (ARM): Interest rate is tied to a market interest rate.
Other Types of Mortgages
- Jumbo mortgages: Loans for expensive homes.
- Subprime mortgages: Home loans for borrowers with poor credit history.
- Alt-A mortgages: Home loans with risk levels between prime and subprime.
- Option ARMs: Adjustable-rate mortgages offering multiple payment options.
- Second mortgages: Loans taken on a property with an existing primary mortgage.
- Home-equity loans: Line of credit secured by a second mortgage.
- Reverse-annuity mortgages (RAMs): Mortgage borrower receives regular monthly payments from a financial institution instead of making payments.
Trading Mortgages in Secondary Market
- Selling mortgages: Financial institutions (FIs) sell mortgages to other companies or investors in the secondary market to acquire funds for new loans.
- Securitizing mortgages: Issuing securities backed by newly originated mortgages.
- This improves liquidity for FIs, manages their risk, and generates additional loan funds.
- Mortgage-backed securities (MBS): Types of this security include pass-through securities, collateralized mortgage obligations (CMOs), and mortgage-backed bonds.
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Description
Explore the fundamentals of mortgage markets, including types of mortgages and their characteristics. This quiz covers essential concepts of home, multifamily, commercial, and farm mortgages, along with key features like down payments and loan maturity. Test your knowledge and understanding of this crucial financial sector.
