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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What type of mortgage has interest subsidized for a specific time?

Fixed-rate mortgage
ARM (Adjustable Rate Mortgage)
Buy-down mortgage
Interest-only mortgage

The correct answer is: Buy-down mortgage

A buy-down mortgage is a type of mortgage where the interest rate is subsidized for a specific period of time, making monthly payments lower initially. This is achieved by paying upfront points or a fee that reduces the interest rate for the borrower. Typically, this subsidy lasts for a set number of years, after which the interest rate adjusts to the normal market level. This structure is beneficial for borrowers who expect their income to increase over time, allowing them to manage their cash flow during the initial years of the mortgage. It contrasts with other types of mortgages, which don’t inherently involve an interest subsidy. For instance, a fixed-rate mortgage maintains the same rate throughout the loan term, while an adjustable-rate mortgage fluctuates based on market conditions but does not have subsidized terms. An interest-only mortgage allows borrowers to pay only the interest for a period, but again, it does not feature an upfront subsidy in the same manner as a buy-down mortgage. The buy-down option thus uniquely supports borrowers by reducing their monthly payments for a defined time, making it an attractive choice for those anticipating future financial flexibility.