A borrower makes an extra $200 principal payment with their regular payment in month 15 of a 30-year fixed-rate mortgage. What is the primary effect on the remaining loan term?
Correct Answer
B) The loan term is reduced by more than one month
When an extra principal payment is made early in the loan term, it reduces the outstanding principal balance, which means all subsequent interest calculations are based on a lower balance. This creates a compounding effect that shortens the loan term by more than the equivalent of one regular payment, especially when made early in the amortization schedule.
Why This Is the Correct Answer
When an extra principal payment is made early in the loan term, it reduces the outstanding principal balance, which means all subsequent interest calculations are based on a lower balance. This creates a compounding effect that shortens the loan term by more than the equivalent of one regular payment, especially when made early in the amortization schedule.
More Mortgage Knowledge Questions
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
A borrower refinances their home with a cash-out refinance loan of $750,000. The original loan balance was $400,000, and they're taking $300,000 in cash. If conforming limits allow $766,550, how is this loan classified?
Under TRID regulations, discount points must be disclosed on the Loan Estimate in which section?
During the draw period of a HELOC, what type of payments are borrowers typically required to make?
A lender packages a $500,000 conventional loan that meets all current GSE standards but was originated using outdated underwriting software that didn't verify employment in the required manner. This loan would be:
An MLO receives a loan application where the borrower lists their income as 'self-employed - varies monthly.' No specific dollar amount is provided. The borrower states they will provide tax returns later. What is the status of this application under TRID?
A borrower is applying for a USDA Rural Development loan. Which of the following best describes the primary eligibility requirement for the property location?
People Also Study
Federal Mortgage-Related Laws
23% of exam
Mortgage Loan Origination Activities
25% of exam
Ethics, Fraud & Consumer Protection
17% of exam
Uniform State Test Content
12% of exam
Related Study Resources
Previous Question
A borrower discovers at the closing table that the lender changed the loan product from a fixed-rate to an adjustable-rate mortgage without providing a new Loan Estimate. The borrower wants to proceed but is concerned about the change. What is the MLO's best course of action?
Next Question
According to the URLA Form 1003, which of the following is NOT one of the six pieces required to constitute a complete application under federal regulations?