General mortgage knowledge
Product questions test how ARMs, interest-only, balloon, reverse and home equity loans behave, and vocabulary such as mortgagor, acceleration, subordination and points. Many are short calculations with ARM caps.
General mortgage knowledge4 min read7 sections
General mortgage knowledge includes the products an MLO sells and the words used on every file. Expect definitions, quick ARM math and 'which product fits' scenarios.
An ARM's rate is the index (market-driven, now usually SOFR after LIBOR ended on June 30, 2023) plus a fixed margin. Caps limit how far the rate can move:
| Cap | Meaning | 2/2/5 ARM starting at 5.50% |
|---|---|---|
| Initial | Most the rate can change at the first adjustment | Up to 7.50% |
| Periodic | Most it can change at each later adjustment | 2 points per adjustment |
| Lifetime | Most it can ever rise above the start rate | Never above 10.50% |
New rate at each adjustment = index + margin, limited by the applicable caps. Payment shock is the jump in payment when a teaser or interest-only period ends; ATR rules qualify borrowers at the fully indexed rate.
Every note. Every question. One pass.
5 more sections of this note are part of Premium.
From about US$8.25/mo on the Until-you-pass pass (12 months)
