Loan Officer Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

Question: 1 / 415

Which type of mortgage allows the borrower to convert equity into cash?

Fixed-rate mortgage

Reverse mortgage

A reverse mortgage is specifically designed for homeowners, typically seniors, to access the equity in their home and convert it into cash. This type of mortgage allows borrowers to receive funds based on the value of their home without the requirement to pay monthly mortgage payments. Instead, the loan balance, along with accrued interest, is repaid when the homeowner sells the home, moves out, or passes away.

In contrast, a fixed-rate mortgage maintains a consistent payment plan where the borrower pays both principal and interest over a set period, thus not allowing for cash access from equity without refinancing or selling the home. VA loans and FHA loans also do not inherently allow for equity to be converted into cash; they are primarily designed to assist eligible borrowers with purchasing homes with favorable terms rather than directly accessing home equity.

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VA loan

FHA loan

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