NMLS SAFE Mortgage Products & Terms Practice Questions
Mortgage Products & Terms makes up 5 of every 50 questions on a Tigertest NMLS SAFE practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on the NMLS SAFE MLO content outline. Original questions; 50 per test, weighted like the real 120-question test, 75% to pass. Not affiliated with NMLS.
1. On an adjustable-rate mortgage, the fully indexed rate is the:
- A.Index times the margin
- B.Index plus the margin
- C.Margin minus the index
- D.Start rate plus the cap
Answer: B. The fully indexed rate is the current index value plus the lender's fixed margin, subject to any rate caps.
2. An ARM has caps written as 2/1/5. The "5" means the rate can never rise more than:
- A.5 points at the first change
- B.5% of the original balance
- C.5 points in any one year
- D.5 points over the start rate
Answer: D. In a 2/1/5 cap structure, 2 is the first-adjustment cap, 1 is each later periodic cap and 5 is the lifetime cap over the initial rate.
3. Which ARM feature can cause negative amortization?
- A.A payment cap
- B.A conversion option
- C.A lifetime rate cap
- D.A fixed margin
Answer: A. When the payment is capped but the rate is not, the payment may not cover the interest due, and the unpaid interest is added to the balance.
4. For a reverse mortgage under the FHA HECM program, the youngest borrower must be at least:
- A.59 and a half
- B.65
- C.62
- D.55
Answer: C. HECM borrowers must be at least 62, occupy the home as a principal residence and complete counseling with a HUD-approved counselor before applying.
5. Which describes a home equity line of credit?
- A.A loan used to buy the first home
- B.A loan the lender pays to the owner
- C.A revolving line with a draw period
- D.A fixed lump sum paid out once
Answer: C. A HELOC is open-end credit secured by the home: the borrower draws as needed during a draw period, then repays during a repayment period.
6. A temporary 2-1 buydown on a 6.5% fixed-rate loan sets the borrower's rate in the first year at:
- A.4.5%
- B.6.5%
- C.2.5%
- D.5.5%
Answer: A. A 2-1 buydown reduces the rate by 2 points in year one (4.5%) and 1 point in year two (5.5%), then the note rate of 6.5% applies. The cost is paid up front, often by the seller or builder.
7. A loan has 7 years of level payments based on a 30-year schedule, then the remaining balance is due. This is a:
- A.Reverse annuity mortgage
- B.Fully amortizing mortgage
- C.Graduated payment mortgage
- D.Balloon mortgage
Answer: D. A balloon loan's payments do not retire the debt by maturity, leaving a large lump sum due at the end of the term.
8. A buyer needs funds to close on a new home before the current home sells. The short-term product that fits is a:
- A.Blanket mortgage
- B.Bridge loan
- C.Construction loan
- D.Reverse mortgage
Answer: B. A bridge loan, often secured by the current home, provides short-term funds to buy the next one until the first home sells.
9. A construction-to-permanent loan:
- A.Releases all funds on the first day
- B.Becomes a mortgage after building
- C.Is paid off in full when building ends
- D.Is secured only by the builder's assets
Answer: B. A one-close construction-to-permanent loan disburses in draws during building, usually interest-only, and then converts to a permanent mortgage.
10. A note clause lets the lender call the whole balance due if the borrower sells the property. This is the:
- A.Escalation clause
- B.Subordination clause
- C.Prepayment clause
- D.Due-on-sale clause
Answer: D. A due-on-sale (alienation) clause lets the lender demand payment in full when the property is transferred, which generally makes the loan non-assumable without consent.
Practice all 20 mortgage products & terms questions, and the rest of the 200-question bank, in the free NMLS SAFE training sets. Questions you miss come back until you have mastered them.
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