Mortgage Products
Product landscape
Candidates must understand the main product types: fixed-rate and variable-rate mortgages, open and closed terms, high-ratio versus conventional mortgages, and the role of mortgage default insurance. Know how amortization differs from term, and how payment frequency affects payoff. Understand home equity lines of credit, second mortgages, private mortgages, bridge financing, and construction or progress-draw mortgages.
Key mechanics
A fixed-rate mortgage locks the rate for the term; a variable-rate mortgage moves with the lender's prime or a reference rate, and may be adjustable-payment or adjustable-rate. Open mortgages permit early repayment without penalty but carry higher rates; closed mortgages restrict prepayment and impose penalties - three months' interest on variable products, or the greater of three months' interest and the interest rate differential on fixed products. High-ratio mortgages (loan-to-value above 80%) require default insurance.
Traps
Questions often blur term and amortization, or assume a variable mortgage has no penalty. Another trap is treating HELOCs and reverse mortgages as interchangeable - reverse mortgages are for seniors and generally require no payments until sale or death. Private mortgages may not require the same qualification standards but carry higher rates and fees, and suitability must still be assessed. Bridge financing is short-term and expensive; do not confuse it with a second mortgage.
Worked example
A borrower with a 20% down payment is at 80% LTV and is conventional; a 5% down payment at 95% LTV requires insurance. If asked which product is cheaper over a short holding period, compare the penalty exposure, not just the posted rate.