About This QuizWe know that the mere mention of the word 'mortgage' might induce a cold sweat -- or make you want to take a nice, long nap instead of taking this quiz. But before you dismiss the topic as too boring or complicated, remember that lack of education is the reason that so many people are caught up in this mortgage mess. So doesn't it make sense to educate yourself? And this easy little quiz is just the way to get your feet wet.
What are the components of your monthly mortgage payment?
principal, interest, escrow
principal, interest, taxes, insurance
Use the handy acronym PITI to remember this one -- principal, interest, taxes, insurance.
principal, interest, taxes, amortization fees
What's one of the main problems with subprime mortgages?
Their introductory interest rates are very low but increase greatly after a few years.
Subprime mortgages are tempting because their interest rates are so low -- but then they're hiked after a few years. They're also offered to buyers with poor credit, who often have trouble making those higher payments.
They don't require a down payment.
The term is so short that the monthly payments are sky-high.
The interest rates fluctuate wildly every month.
A credit score below this number makes you a subprime borrower.
Subprime' mortgages refer to the borrower's credit score, not the loan's low interest rate. Most people have credit scores at least in the mid- to high 600s, and subprime borrowers fall under 620.
What state has the country's highest rate of subprime mortgages?
California has more homes than any state and thus the most foreclosures -- it also has the highest subprime mortgage rate.
What's the largest mortgage company in the country?
Bank of America
Companies change names and are bought and sold on a seemingly daily basis these days, but Countrywide was the champ at press time.
If you make one extra payment a year on a 30-year fixed mortgage, by how much will it shorten the term of your loan?
Extra payments go directly to the principle of your loan (as opposed to paying off interest). So just one extra payment a year goes a long way -- it will shorten your loan term by 10 years.
How many different terms (lengths) are available for a fixed-rate mortgage?
Fixed-rate mortgages come in 15-, 20- and 30-year terms.
What's the easiest term to qualify for: 15, 20 or 30 years?
Thirty-year mortgages are the easiest to get -- the longer term also results in lower payments, and you get a bigger tax deduction.
What does ARM stand for?
annual return mortgage
The interest rates on adjustable-rate mortgages change with market rates. The rates are lower but obviously not as stable, so ARMs are best if you aren't planning on staying in the house long-term.
annual reasonable mortgage
If you get an ARM, your interest rate might increase up to __ percent.
ARM interest rates have been known to increase up to 50 percent, and maybe even more.
In a 2007 report, what did Countrywide find was the No. 1 reason for foreclosure?
loss of income
Curtailment of income' was the main reason, although it's important to remember that the major fallout from subprime mortgages was still to come, at the end of 2008.
changes in mortgage interest rate
failure to sell the home
In 2008, the Federal Housing Administration reported that 900,000 homes were in foreclosure. How much of an increase was that from 2007?
There were a whopping 71 percent more homes in foreclosure in 2008 -- almost 2 percent of all homes.
The conventional loan limit for federally backed (Fannie May and Freddie Mac) mortgages is $300,700. What are loans called that are over that limit?
If you're financing more than $300,700, you have a jumbo loan.
What's the debt-to-income ratio that most lenders require?
Most lenders want you to have a 28/36 debt-to-income ratio.
OK, so what does that mean? What does the 28 mean?
No more than 28 percent of your total monthly pretax income can be used for housing.
Twenty-eight is the maximum percentage of your monthly pretax income that you can spend on housing. So if your potential new mortgage would equal 30 percent of your income, you either wouldn't qualify for the loan or you'd have to do a lot of wheeling and dealing to get it.
You must pay less than 28 percent of your monthly post-tax income for all debts, including housing.
Your monthly income must be 28 percent greater than the total of your debts.
And what does the second number -- the 36 -- mean?
Your monthly income has to be 36 percent more than the mortgage payment.
No more than 36 percent of your monthly income can go toward your total monthly debt, including the mortgage.
It means that your total monthly debt, including mortgage, must be no more than 36 percent of your monthly income. So you could qualify with the aforementioned 28 percent part, but if you have car payments and student loans that add up to more than 36 percent of your monthly income, you could be out of luck.
When lenders are looking at your job history, they'd like you to have been at your current job for at least ____ years.
Two is the magic number, even for part-time employees or if you're self-employed.
What percentage of your total loan will you probably have to pay in closing costs?
1 to 2
2 to 5
3 to 6
Closing costs vary according to the tax rates where you live, but 3 to 6 percent is about average.
4 to 7
When did mortgages, as they now work, come into being?
Insurance companies, not banks, actually came up with the idea for mortgages. But before 1934, when the Federal Housing Administration stepped in, down payments could be as high as 80 percent.
What does it mean to be 'upside-down' on your mortgage?
You owe more than your house is worth.
The falling housing market -- and a zillion other factors -- have caused more homeowners than ever before to be upside-down on their mortgages, meaning they owe more than the house is worth.
You've failed to make payments for six months.