Ch 10 - Finance Techniques Flashcards
What type of loan allows the borrower to make periodic payments of interest only for the term of the loan, usually from 1 to 5 years?
Term loan or a straight note
What type of loan provides for periodic payments, usually monthly, which include principal and interest?
Fully amortized loan
A loan where the repayment schedule calls for a series of amortized payments followed by a balloon payment at maturity
Partially amortized loan
The relationship between the amount of money a lender is willing to loan and the lenders estimate of the market value of the property that will serve as security
Loan-to-value ratio
Charging a rate of interest in excess of that permitted by law
Usury
An added loan fee charged by a lender to make the yield on a lower-than-market-interest VA or FHA loan competitive with higher-interest conventional loans
Discount points
A fee in terms of a percentage of the loan about, stated by lender
Origination fee
The difference between the properties value and the total debt
Equity
Vacant land commands the lowest L/V…
Calling for the largest down payment
True or false:
Most acquisition loans are exempt from state usury laws
True
True or false:
On a conventional loan, the lender will loan up to 95% of value with private mortgage insurance
True
True or false:
Loan-to-value ratios are based on the lenders perception of the risk involved
True
True or false:
The rule is that the price or value, which ever is lower, is applied to the L/V ratio
True
True or false:
Before the depression, most real estate loans were straight-term mortgages
True
True or false:
Straight term loans are generally longer in duration than amortized loans
False
True or false:
The fully amortized loan has been the most widely used method of repayment since the 1930s
True
Which type of loan is also called a constant or equal payment mortgage?
Fully amortized loan
What is the amount of interest in a fully amortized loan computed on?
The principal balance at a fixed rate
As the loan matures, the amount applied to the principal ______ each month while the amount of interest _______ until the full amount of principle has been repaid
Increases
Decreases
What is the basic rule of economics?
The higher the risk, the lower the L/V. Making a larger down payment will result in a lower L/V
What is it called when the value increases in the loan amount decreases?
Equity build up
What is the final payment of a loan called?
Balloon payment
For the borrower, what is the advantage and disadvantage of a partially advertise loan?
The advantage is that for 10 years the monthly payments will be smaller than if the loan was completely amortized in 10 years.
The disadvantage is that the balloon payment due at the end of the 10th year might be the borrowers financial downfall.
