Mortgage Loan Originator (MLO) Licensing Practice Test

Non-standard mortgages refer to loan products that deviate from the traditional mortgage structure often characterized by fixed-rate or standard adjustable-rate loans. Among the options, adjustable-rate mortgages (ARMs), interest-only (I/O) loans, and loans with negative amortization represent forms of non-standard mortgages due to their unique repayment structures and associated risks.

ARMs typically involve interest rates that can fluctuate based on market conditions, leading to potential changes in monthly payments over time. Interest-only loans allow borrowers to pay only the interest for a set period, resulting in a larger remaining balance when the principal repayment begins. Negative amortization occurs when the payment does not cover the interest due, causing the loan balance to increase rather than decrease. These features introduce complexities and risks not found in standard mortgage loans, which generally have predictable payment schedules and require principal and interest payments.

In contrast, fixed-rate mortgages and conventional loans typically have consistent repayment structures that do not expose borrowers to the same level of risk associated with the economic fluctuations or the unique dynamics of the aforementioned non-standard products. Government-backed loans also maintain conventional structure and standards, ensuring that borrowers have predictable payment arrangements. Thus, the classification of non-standard mortgages is accurately represented by ARMs, I/O, and loans with negative amort