Finance
A North Dakota borrower who is 'underwater' on their mortgage means:
AThe property is in a flood zone
BThe loan balance exceeds the current market value of the property✓ Correct
CThe borrower is behind on payments
DThe mortgage was used to buy waterfront property
Explanation
Being 'underwater' (or 'upside down') means the outstanding mortgage balance is greater than the property's current market value. This situation can arise when property values decline after purchase and can make it difficult to sell or refinance without bringing cash to closing.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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