Loan Officer Practice Exam

What type of mortgage does not require monthly payments while the borrower resides in the home?

1. Conventional mortgage

2. FHA mortgage

3. Reverse mortgage

4. VA mortgage

The correct answer is: Reverse mortgage

A reverse mortgage is specifically designed for homeowners, typically seniors, allowing them to convert part of their home equity into cash without having to make monthly mortgage payments. Instead of the borrower paying the lender, the lender makes payments to the borrower based on the equity built up in the home. The loan is repaid only when the borrower sells the home, moves out, or passes away. This feature makes reverse mortgages particularly attractive for retirees who may be cash-strapped but still want to remain in their homes without the burden of monthly payments. In contrast, conventional mortgages, FHA mortgages, and VA mortgages all require regular monthly payments while the borrower occupies the property. These loans are structured in a way where the homeowner builds equity over time through consistent payments, and the repayment terms typically include mandatory monthly payments until the loan is fully paid off. Therefore, the fundamental characteristic of a reverse mortgage—elimination of monthly payments while living in the home—distinguishes it as the correct choice in this context.