Texas Real Estate Exam Practice

Question 1 of 5

Real Estate FinancingMedium

What is the key structural difference between a mortgage and a deed of trust?

AA mortgage always carries a lower interest rate

BA deed of trust adds a trustee; a mortgage has just two parties

CA deed of trust can never be used for a home purchase

DThere is no legal difference between the two instruments

Explanation

A mortgage is a two-party security instrument between borrower and lender, while a deed of trust adds a third party — a trustee — who holds legal title as security until the loan is repaid. Which one is used doesn't determine the interest rate, and a deed of trust is commonly used for home purchases in many states.

Question 2 of 5

Real Estate FinancingMedium

What is the main practical difference between a fixed-rate and an adjustable-rate mortgage?

AA fixed-rate's interest rate stays the same; an adjustable-rate's can change

BThe two terms describe identical loan structures

CAn adjustable-rate mortgage never charges any interest

DA fixed-rate mortgage can never legally be refinanced again at any later point

Explanation

A fixed-rate mortgage locks in one interest rate for the life of the loan, while an adjustable-rate mortgage's rate can change periodically based on market conditions — a fixed-rate loan can still be refinanced like any other loan, and an adjustable-rate loan absolutely still charges interest, just at a rate that can move.

Question 3 of 5

Real Estate FinancingMedium

What does the loan-to-value (LTV) ratio measure?

AThe total interest paid over the full life of the loan

BThe loan amount as a percentage of the property's value

CThe property's value compared to nearby comparable sales

DThe buyer's monthly income as a percentage of the payment

Explanation

LTV compares the loan amount to the property's appraised value (loan divided by value), which lenders use to gauge risk — it isn't an income-to-payment ratio (that's closer to a debt-to-income calculation), isn't a total-interest figure, and isn't a comparable-sales analysis.

Question 4 of 5

Real Estate FinancingMedium

What does a promissory note represent in a financed real estate purchase?

AThe lender's promise to approve any future refinance

BThe document that physically transfers title to the buyer

CThe borrower's personal promise to repay the debt

DA government guarantee that the loan will be repaid

Explanation

The promissory note is the borrower's personal, signed promise to repay the loan under its stated terms; the deed is what transfers title, not the note. It's not a promise about future refinancing, and it isn't a government guarantee (that's a separate feature of certain loan programs).

Question 5 of 5

Real Estate FinancingMedium

What does 'amortization' describe in a typical home loan?

APaying off a loan over time through payments covering principal and interest

BA penalty charged for paying a loan off too early

CThe one-time closing cost charged when a loan originates

DThe general process of increasing a loan's total balance after any refinancing occurs

Explanation

Amortization is the schedule by which regular payments gradually pay down both principal and interest over the loan's term — it isn't a one-time closing fee, doesn't describe a balance increasing after refinancing, and isn't a prepayment penalty (a separate, distinct loan feature).

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