Mortgage Products
Core Product Knowledge
Candidates must distinguish fixed-rate and variable-rate mortgages, open versus closed terms, and the prepayment privileges that accompany each. Understand high-ratio versus conventional mortgages, the role of mortgage default insurance, and how amortization differs from term. Know the features of home equity lines of credit, bridge financing, and second mortgages, and how each affects underwriting and disclosure.
Traps to Watch
Questions often blur the difference between amortization period and term, or between an open term (penalty-free prepayment) and a closed term (prepayment penalties). Another common trap is confusing mortgage default insurance (protects the lender, required for high-ratio loans) with mortgage life insurance (protects the borrower, optional). Watch for distractors that treat a HELOC as a standard closed mortgage, or that ignore the effect of a collateral charge on switching lenders.
Rule of Thumb
Match the product to the borrower's flexibility need. If the borrower expects to prepay or sell soon, an open or portable product may outweigh a lower closed rate. If the loan is high-ratio, default insurance is mandatory and affects the effective cost.
Worked Example
A borrower with a 5% down payment needs a $475,000 mortgage on a $500,000 home. Because the loan-to-value exceeds 80%, mortgage default insurance is required. The premium is added to the loan balance, increasing the effective mortgage amount and the monthly payment. A candidate who forgets to add the premium will understate the payment.