Cwmc Module 22: Mortgage Competency Test

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| By Alice Whinnery
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Alice Whinnery
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Quizzes Created: 20 | Total Attempts: 1,966
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Module Quizzes & Trivia

This quiz is part of LFEInstitute's CWMC (Certified Workplace Money Coaching) course. It willtest yourproficiency in the Mortgage Module (Module 22) of theprogram. The questions are allmultiple choice, and are designed to be a review of this Module. LetLFE knowwhen you've successfully completed this test and are ready to begin thenext Module.

Correct answers required for passing grade: 13/15


Questions and Answers
  • 1. 

    Which of the following is a benefit of a Balloon ARM?

    • A.

      Payments increase when rates rise

    • B.

      Low initial rate compared to fixed rate

    • C.

      No stability; payments vary with market

    • D.

      May need to refinance to pay off balloon

    • E.

      Rates at payoff could be cost prohibitive

    Correct Answer
    B. Low initial rate compared to fixed rate
    Explanation
    A benefit of a Balloon ARM is that it offers a low initial rate compared to a fixed rate. This means that borrowers can enjoy lower monthly payments during the initial period of the loan. However, it is important to note that this initial rate is temporary and will eventually adjust to market rates, potentially resulting in higher payments in the future.

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  • 2. 

    Which of the following will NOT influence the selection of the best mortgage?

    • A.

      Rate stability

    • B.

      Time frame

    • C.

      Monthly mortgage payment

    • D.

      Closing costs

    • E.

      HIPAA status

    Correct Answer
    E. HIPAA status
    Explanation
    HIPAA status refers to the Health Insurance Portability and Accountability Act, which is a US law that protects the privacy and security of individuals' health information. It is unrelated to the selection of the best mortgage, as it pertains to healthcare and not financial considerations. Therefore, HIPAA status will not influence the selection of the best mortgage.

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  • 3. 

    Common mortgage myths include: (check all that apply)

    • A.

      “The best mortgage has the lowest upfront cost.”

    • B.

      “My mortgage lender will look out for me.”

    • C.

      “Home buyers can determine the interest rate they pay in a variety of ways."

    • D.

      “The best mortgage has the lowest interest rate.”

    • E.

      “Adjustable-rate mortgages can be risky.”

    Correct Answer(s)
    A. “The best mortgage has the lowest upfront cost.”
    B. “My mortgage lender will look out for me.”
    D. “The best mortgage has the lowest interest rate.”
    Explanation
    The correct answer for this question is that the common mortgage myths include: "The best mortgage has the lowest upfront cost", "My mortgage lender will look out for me", and "The best mortgage has the lowest interest rate". These statements are considered myths because they are not always true. The best mortgage may not necessarily have the lowest upfront cost or interest rate, and it cannot be assumed that the mortgage lender will always have the borrower's best interests in mind.

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  • 4. 

    Which of the following are key questions a consumer should ask a mortgage broker? (check all that apply)

    • A.

      What size down payment do I qualify for and how was that figure calculated?

    • B.

      What is your ethnicity?

    • C.

      Are discount points available and should I pay them?

    • D.

      Can I escrow my car insurance payments in with my mortgage insurance?

    • E.

      During the entire period I plan to own the home, what is my total mortgage cost?

    Correct Answer(s)
    A. What size down payment do I qualify for and how was that figure calculated?
    C. Are discount points available and should I pay them?
    E. During the entire period I plan to own the home, what is my total mortgage cost?
    Explanation
    The correct answers are: "What size down payment do I qualify for and how was that figure calculated?", "Are discount points available and should I pay them?", and "During the entire period I plan to own the home, what is my total mortgage cost?"

    These questions are key for a consumer to ask a mortgage broker because they address important aspects of the mortgage process. Knowing the size of the down payment and how it was calculated helps the consumer understand their eligibility and financial requirements. Inquiring about discount points allows the consumer to explore potential cost-saving options. Asking about the total mortgage cost over the ownership period helps the consumer evaluate the long-term financial implications of the mortgage.

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  • 5. 

    To correct typos in your Money Coaching response, the best Microsoft Word tool to use is:

    • A.

      AutoFormat

    • B.

      Bullets and Numbering

    • C.

      Spelling and Grammar (spell check)

    • D.

      Print Preview

    • E.

      Word Count

    Correct Answer
    C. Spelling and Grammar (spell check)
    Explanation
    The best Microsoft Word tool to use for correcting typos in a Money Coaching response is the Spelling and Grammar (spell check) tool. This tool automatically checks for and corrects spelling mistakes and grammatical errors in the document, making it an efficient way to fix any typos in the text.

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  • 6. 

    Advantages of reverse mortgages include: (check all that apply)

    • A.

      Seniors have no closing costs

    • B.

      Allows qualified borrowers to live for the rest of their lives in a home while receiving extra money

    • C.

      Reverse mortgages are inexpensive loans

    • D.

      Does not affect eligibility for some need-based programs such as Medicaid

    • E.

      Reverse mortgage payments received are tax free

    Correct Answer(s)
    B. Allows qualified borrowers to live for the rest of their lives in a home while receiving extra money
    E. Reverse mortgage payments received are tax free
    Explanation
    The correct answer is "Allows qualified borrowers to live for the rest of their lives in a home while receiving extra money" because reverse mortgages provide a way for seniors to access the equity in their homes without having to sell or move out. This allows them to continue living in their homes while receiving additional income. Additionally, the answer "Reverse mortgage payments received are tax free" is also correct because the money received from a reverse mortgage is not considered taxable income.

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  • 7. 

    CWMC Module 22 Mortgages covers strategies that will help consumers select the best mortgage and ______________.

    • A.

      Avoid mortgage scams

    • B.

      Show the advantages of buying used furniture for the new home

    • C.

      Trust the loan process today

    • D.

      Learn the cheapest place to purchase a home

    • E.

      All of the above

    Correct Answer
    A. Avoid mortgage scams
    Explanation
    The correct answer is "avoid mortgage scams". The module covers strategies to help consumers choose the best mortgage and protect themselves from falling victim to mortgage scams. It provides information and guidance on how to identify and avoid fraudulent practices in the mortgage industry.

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  • 8. 

    Select the best description of a sub-prime loan:

    • A.

      Only offered to minorities

    • B.

      Offered to lower-income borrowers with “spotty” credit records

    • C.

      Not offered by Freddie Mac or Fannie Mae

    • D.

      Only offered as second mortgages

    • E.

      None of the above are even close

    Correct Answer
    B. Offered to lower-income borrowers with “spotty” credit records
    Explanation
    A sub-prime loan is offered to lower-income borrowers with "spotty" credit records. This means that the loan is provided to individuals who have a history of late payments, defaults, or other negative credit events. These borrowers may not qualify for prime loans due to their credit history, so sub-prime loans are offered as an alternative.

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  • 9. 

    Which of the following is generally included on a home appraisal report?

    • A.

      Cost to replace the appliances

    • B.

      Comparable pricing of other real estate properties in the area

    • C.

      Estimate of cost to replace a leaky roof

    • D.

      An opinion of the decor

    • E.

      How easy the home will be to sell

    Correct Answer
    B. Comparable pricing of other real estate properties in the area
    Explanation
    A home appraisal report generally includes comparable pricing of other real estate properties in the area. This information is important because it helps determine the fair market value of the property being appraised. By comparing the property to similar properties in the same area, appraisers can assess its value based on factors such as size, location, condition, and amenities. This information is crucial for buyers, sellers, and lenders to make informed decisions about the property's worth.

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  • 10. 

    To secure the lowest interest rate on a mortgage, which of the following is the most important issue to the lender?

    • A.

      How many people will live in the house

    • B.

      Total liabilities

    • C.

      FICO score

    • D.

      Home location

    • E.

      How much insurance the buyer will put on the home

    Correct Answer
    C. FICO score
    Explanation
    The FICO score is the most important issue to the lender when securing the lowest interest rate on a mortgage. The FICO score measures a person's creditworthiness and indicates their ability to repay the loan. Lenders use this score to assess the level of risk involved in lending money to an individual. A higher FICO score indicates a lower risk, and therefore, lenders are more likely to offer a lower interest rate to borrowers with a high FICO score.

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  • 11. 

    Select the type of real estate loan that carries the highest interest rate:

    • A.

      Prime loan

    • B.

      Alt/A loan

    • C.

      Title loan

    • D.

      Sub-prime loan

    • E.

      VA loan

    Correct Answer
    D. Sub-prime loan
    Explanation
    A sub-prime loan is a type of real estate loan that is offered to borrowers with low credit scores or a history of financial difficulties. Due to the higher risk associated with these borrowers, lenders charge a higher interest rate on sub-prime loans compared to other types of real estate loans. This is because the lender wants to compensate for the increased likelihood of default or late payments. Therefore, the sub-prime loan carries the highest interest rate among the options listed.

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  • 12. 

    The best reason to refinance a home mortgage is to:

    • A.

      Obtain a lower interest rate

    • B.

      Borrow the equity to buy a new car

    • C.

      Borrow the equity to pay for college

    • D.

      Increase the length of the loan

    • E.

      All of the above are good reasons

    Correct Answer
    A. Obtain a lower interest rate
    Explanation
    Refinancing a home mortgage to obtain a lower interest rate is the best reason because it can result in significant savings over the life of the loan. By securing a lower interest rate, homeowners can reduce their monthly mortgage payments and potentially save thousands of dollars in interest payments. This can free up funds for other financial goals or allow homeowners to pay off their mortgage faster. Refinancing to borrow equity for other purposes, such as buying a car or paying for college, may be viable options but they do not necessarily provide the same long-term financial benefits as obtaining a lower interest rate.

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  • 13. 

    "ARM" is the abbreviation for which of the following terms?

    • A.

      Alternative Rate Mortgage

    • B.

      Advantage Reverse Mortgage

    • C.

      Adjustable Rate Mortgage

    • D.

      Adjustable Rising Mortgage

    • E.

      None of the above

    Correct Answer
    C. Adjustable Rate Mortgage
    Explanation
    The correct answer is "Adjustable Rate Mortgage." An ARM is a type of mortgage loan where the interest rate can change over time based on market conditions. This means that the monthly mortgage payments can also fluctuate. Unlike a fixed-rate mortgage, an ARM offers an initial fixed interest rate for a certain period, after which it adjusts periodically. This allows borrowers to take advantage of lower interest rates initially but also carries the risk of potential rate increases in the future.

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  • 14. 

    What is the most important thing to do if a mortgage payment cannot be made?

    • A.

      Prepare to put the house up for sale

    • B.

      Work an additional job

    • C.

      Make payments with a credit card

    • D.

      Ignore all collection calls

    • E.

      Call the lender immediately

    Correct Answer
    E. Call the lender immediately
    Explanation
    When a mortgage payment cannot be made, it is crucial to call the lender immediately. By contacting the lender, the borrower can explain the situation and explore potential options such as loan modification, forbearance, or repayment plans. Ignoring the issue or making payments with a credit card may only worsen the financial situation. Working an additional job or preparing to sell the house might be necessary in the long run, but it is important to communicate with the lender first to find a solution.

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