Mortgage Loan Originator (MLO) Licensing Practice Test

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Prepare for the Mortgage Loan Originator Licensing Test. Study with flashcards and multiple choice questions. Each question includes hints and explanations. Maximize your chances of passing!

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In a 3/1 hybrid loan, for how long is the interest rate fixed?

1 year
2 years
3 years
5 years

The correct answer is: 3 years

In a 3/1 hybrid loan, the interest rate is fixed for the first three years of the loan term. This type of loan combines characteristics of fixed-rate and adjustable-rate mortgages (ARMs). The "3" in the label indicates that the initial interest rate is fixed for three years, providing the borrower with predictable monthly payments during this period. After the initial fixed-rate period, the loan's interest rate will adjust annually based on a specified index and margin, which can lead to fluctuations in monthly payments. This structure is appealing to borrowers who might anticipate selling or refinancing their home before the adjustable period begins, as they can benefit from the stability of fixed rates early on. Understanding how the hybrid loans function helps borrowers make informed choices regarding their mortgage financing options.