Mortgage Products
Product types
Candidates should know the main product categories: fixed-rate, variable-rate, hybrid, open, closed, and convertible mortgages; plus home equity lines of credit (HELOCs), bridge financing, and construction financing. Government-backed insurance programs shape product eligibility, and different products suit different borrower needs (stability vs. flexibility vs. cost).
Features to compare
- Rate type: fixed (stable payment) vs. variable (moves with prime).
- Prepayment privileges: annual lump-sum limits, payment increase options.
- Portability and assumability: transferring a mortgage to a new property or buyer.
- Convertibility: switching from variable to fixed without penalty.
- Penalties: typically interest-rate differential for fixed, or a payment-based penalty.
Traps
Questions often test whether a product feature is a right or an option. Another trap: assuming variable-rate mortgages always have lower penalties; they often use a simpler three-month interest penalty, but terms vary. Also, bridge financing is short-term and used to close timing gaps - not a long-term product.
Worked example
If a borrower expects to sell within two years and wants flexibility, an open or convertible product may be preferable despite a higher rate. Rule of thumb: match product features to the borrower's time horizon and prepayment likelihood, not just the headline rate.