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Answer: d) In a low interest environment, an adjustable rate mortgage (ARM) is generally advised because the borrower can always decide to refinance at a later date
Statement **d** is clearly false. - An ARM may start with a lower teaser rate than a fixed-rate mortgage, so **a** is generally true. - A conforming loan does meet agency guidelines and is subject to a loan-size limit, so **b** is true. - A jumbo loan is above the conforming limit, and its rate can be higher or lower depending on market conditions and borrower characteristics, so **c** is true. - The idea that a borrower **can always refinance later** is incorrect. Refinancing depends on many factors, including future interest rates, creditworthiness, home value, and underwriting conditions. Therefore **d** is the false statement.
Author: Manit Arora
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Q-508.1. Sally is meeting with her real estate agent in order to prepare her application for a mortgage loan. The real estate agent makes the following four statements. Each of these statements is true, or at plausible, EXCEPT which is clearly false?
A
a) The initial interest rate on a 3/1 hybrid adjustable rate mortgage (ARM) is less than the rate on a 30-year fixed rate mortgage (FRM)
B
b) A conforming loan meets guidelines set by agencies such as Fannie Mae and Freddie Mac and include limits on the loan size
C
c) A "jumbo" is a mortgage loan with an amount above the conforming (aka, agency) loan limit; interest rates on a jumbo loan may be higher or even lower than (otherwise-equivalent) conforming loans
D
d) In a low interest environment, an adjustable rate mortgage (ARM) is generally advised because the borrower can always decide to refinance at a later date
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