Sec3-Page 79

A borrower obtains an interest-only mortgage but never realizes the payment will increase when the interest-only period ends. What is the primary risk?

A homeowner makes only the required interest-only payments for seven years and then decides to sell the property. Why might the borrower be surprised by the amount of equity available?

A borrower selected an interest-only mortgage because she expected a major promotion within five years. The promotion never occurs. What disadvantage is illustrated?

A borrower planned to refinance an interest-only mortgage before the payment reset. Interest rates increased substantially during the interest-only period. What problem may result?

A borrower intended to sell a home before the interest-only period ended. Unfortunately, property values declined and the mortgage balance exceeded the home’s value. What risk is demonstrated?

During the interest-only period of a mortgage, what does the required monthly payment generally include?

A borrower asks how long the interest-only feature commonly lasts before the payment resets. What is the typical period described in the manual?

A borrower reaches the end of a 10-year interest-only period. What typically happens next?

A borrower completes a 5-year interest-only period on a 30-year mortgage. After the payment reset, the remaining balance will generally be amortized over what period?

A medical student expects to become a highly paid surgeon after completing training and chooses an interest-only mortgage to reduce housing costs during school. Why might this strategy be appropriate?