Loan Products & Mortgage Terms: practice questions

A creditor offers a historical example in its ARM program disclosure. How many years of index values must it reflect?

1. 5
2. 10
3. 15 ✓
4. 30

Why: 12 CFR 1026.19(b)(2)(viii)(A): the historical example, based on a $10,000 loan, "shall reflect the most recent 15 years of index values". The creditor may instead give the maximum rate and payment example in (b)(2)(viii)(B).

Source: 12 CFR 1026.19(b)(2)(viii)

A consumer lives full time in a mobile home that is not attached to any land. Is it a "dwelling" under Regulation Z?

1. No; a dwelling must be attached to real property
2. Only if the owner also holds title to the land beneath
3. Yes; a mobile home used as a residence is a dwelling ✓
4. Only if it has been taxed as real estate for a year

Why: 12 CFR 1026.2(a)(19): a dwelling is "a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence."

Source: 12 CFR 1026.2(a)(19)

A borrower will live in one unit of a building she is buying. Above how many units is credit to acquire an owner-occupied rental property deemed business purpose?

1. 1 unit
2. 2 units ✓
3. 4 units
4. 10 units

Why: Under 12 CFR 1026.3(a), Supplement I comment 3(a)-5.i: credit to acquire owner-occupied rental property "is deemed to be for business purposes if it contains more than 2 housing units". Credit to improve or maintain it is business purpose above 4 units (comment 3(a)-5.ii).

Source: 12 CFR 1026.3(a); Supplement I comment 3(a)-5

On an interest-only ARM, what happens to the monthly payment when the interest-only period ends, if rates have not changed?

1. It stays the same, since the interest rate is unchanged
2. It rises, because principal must now be repaid as well ✓
3. It falls, because part of the balance has been paid off
4. It stays the same until the next scheduled rate change

Why: CHARM: "When the interest-only period ends, your monthly payment increases, even if interest rates stay the same, because you must start paying back the principal plus the interest each month."

Source: CFPB Consumer Handbook on Adjustable-Rate Mortgages (CHARM), p. 20

What must the HELOC application disclosures say about the risk to the consumer's home?

1. That the home will be reappraised every year and the credit line reset to match it
2. That the creditor takes a security interest and the home may be lost on default ✓
3. That the consumer may lose the home only if the line is at its maximum
4. Nothing; that warning appears only in the brochure, not the disclosures

Why: 12 CFR 1026.40(d)(3) requires "A statement that the creditor will acquire a security interest in the consumer's dwelling and that loss of the dwelling may occur in the event of default."

Source: 12 CFR 1026.40(d)(3)

Which of these is treated as a refinancing under 12 CFR 1026.20(a), with new disclosures?

1. A lower APR with a matching change to the payment schedule on the existing note
2. A change to the payments agreed in a court proceeding over the existing loan
3. Renewal of a single-payment note with no change to its original terms at all
4. The same borrower's loan is satisfied and replaced by a new one at a higher rate ✓

Why: 12 CFR 1026.20(a): a refinancing occurs when an existing obligation "is satisfied and replaced by a new obligation undertaken by the same consumer". Not treated as refinancings: "(1) A renewal of a single payment obligation with no change in the original terms. (2) A reduction in the annual percentage rate with a corresponding change in the payment schedule. (3) An agreement involving a court proceeding."

Source: 12 CFR 1026.20(a)

In 2026, a consumer borrows $90,000 secured by her home. Does Regulation Z's exemption for credit above the annual threshold apply?

1. Yes; any credit above $73,400 in 2026 is outside Regulation Z altogether
2. Yes, unless the loan is a high-cost mortgage under HOEPA
3. No, but only because the loan is also a first-lien loan
4. No; credit secured by real property or a home is covered ✓

Why: 12 CFR 1026.3(b)(1)(i) exempts credit above the annual threshold ($73,400 for 2026, FR Doc. 2025-22814) "unless the extension of credit is: (A) Secured by any real property, or by personal property used or expected to be used as the principal dwelling of the consumer".

Source: 12 CFR 1026.3(b); FR Doc. 2025-22814

A loan is guaranteed by a state housing agency. How is the Loan Type shown on the Loan Estimate?

1. As Conventional, as no federal agency backs it
2. As Other, with a brief description ✓
3. As FHA
4. As VA

Why: 12 CFR 1026.37(a)(11)(iv): for federally insured or guaranteed loans other than FHA and VA, "and for loans insured or guaranteed by a State agency, the creditor shall disclose the loan type as 'Other', and provide a brief description".

Source: 12 CFR 1026.37(a)(11)