Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

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Prepare for the Texas Real Estate SAE Exam with our educational quiz. Study using flashcards and multiple choice questions, each with detailed explanations to ensure you're ready to pass your exam!

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What type of financial instrument is a mortgage loan classified as?

Stock
Bond
Security
Equity

The correct answer is: Security

A mortgage loan is classified as a financial instrument termed a security because it represents a debt obligation that is backed by the value of real property. When a borrower takes out a mortgage, they are entering into a legal agreement to repay the loan over time, with the property serving as collateral. This allows the lender to secure their investment in the event of default. In the context of real estate, mortgage loans can be bundled together and sold to investors as mortgage-backed securities. This process transforms individual mortgage loans into a tradeable asset, thereby further solidifying their classification as securities. While stocks and equity represent ownership in a company or asset, and bonds generally represent loans made to entities with the promise of repayment with interest, mortgage loans fit within the broader category of securities due to their structure and the nature of the financial transactions they represent.