CH 13 - Types of Mortgages & Sources of Financing Flashcards
FHA insured
VA guaranteed
Conventional
3 types of mortgages
FHA
Federal Housing Authority, created in 1934
What does the FHA do/NOT do?
DOES NOT make loans
DOES insure loans
Protects lender in foreclosure
Basic mortgage insurance for purchase/refinance of owner-occupied 1-4 family properties
203(b) mortgage insurance
Financing of the purchase of a 1-4 family dwelling and the cost of its rehab w/ a single mortgage
203(k) Rehabilitation Mortgage Insurance
Insurance for 30-yr loans to purchase a single-unit condo
234(c) condominiums
Mortgage insurance on adjustable rate financing
251 Adjustable rate mortgage
PMI
Private Mortgage Insurance
Fee charged by lender, that borrower pays to offset the increased risk of conventional mortgage loan
PMI is usually required when
loan exceeds 80% of property value
Automatic cancellation of PMI when
LTV is 78% or less of property’s original value
Borrower can request PMI cancellation when
Loan paid down to 80%
what does FS 687 do?
limits the interest rate that can be charged for a loan
loan amounts up to 500k = __% interest rate
loan amounts of 500k or more = __% interest rate
18%
25%
UFMIP
Upfront Mortgage Insurance Premium
paid at time of closing of loan
can be paid annually
1.75% of mortgage amount
can be paid by borrower, seller, or third party
.85% of annual outstanding FHA loan balance divided into 12 monthly payments
AMIP (Annual Mortgage Insurance Premium)
What does PMI do?
Protects the lender
charging an excessive rate of interest is called ____
usury
VA guaranteed mortgage loan DOES NOT _____
set a max loan amount
_____ mortgage loans are harder for borrower to get than the other kinds
require a ____ down payment and carry a ____ interest rate
these loans are ___ ______ or _____
Conventional
higher; higher
not insured or guaranteed
Amortized mortgage (scheduled periodic payments that include portion to interest and principal)
Interest portion + Principal portion =
Monthly mortgage payment
I
P
R
T
I - Interest portion of monthly payment
P - Principal amount of loan (loan balance)
R - Rate of ann. interest charged on loan (%)
T - Time expressed in fractions of a year
Formula for calculating interest portion of loan payment
I = PxRxT
Characteristics of an Amortized Loan
- interest paid each month is LESS than amount paid the previous month
- principal portion paid each month is MORE than the amount paid previous month
- principal balance of loan decreases each month, resulting in zero balance at end of loan term
mortgage that includes real and personal property as security for loan (includes fridge, dishwasher etc)
package mortgage
mortgage that uses ONLY personal property for security of loan
chattel mortgage
Payments on a fixed rate amortized loan consist of what two components?
Principal and interest
Which type of loan has payments that are sufficient to repay the loan amount and the interest owed over the life of the loan?
fully amortizing
What is NOT TRUE about a fixed rate or level payment mortgage loan?
the amount of each payment that is applied to paying interest increases over the life of the loan
the rate of a specific, published index as of a specified date, plus a fixed margin, DETERMINES _____
interest rate that a borrower must pay on an adjustable rate
What are the advantages of a shorter-term mortgage loan over a 30 year loan?
the borrower pays less interest of the life of the loan and the interest rate is likely to be lower
a mortgage that pledges multiple properties as security for a loan
Blanket mortgage
flow of deposits into lending institutions, creating mortgage money supply
Intermediation
when depositors bypass traditional depository institutions and withdraw from accounts w/ low fixed interest rates, then transfer those funds into alt investments w/ higher interest rates (yields) like the stock market, mutual funds, artwork, etc
Disintermediation
Large scale Disintermediation, can ______
Reduce the mortgage money supply and cause interest rates to rise
5 parts of Federal Reserve System
- Board of Governors
- 12 Federal Reserve banks and branches
- Federal Open Market Committee
- Federal Advisory Council
- Member banks
Board of Governors
7 members appointed by president and confirmed by congress
- 14 year term
actions of board of governors that regulates cost and availability of credit in the US
monetary policy
% of money on deposit in a bank that cannot be used for lending, must be transferred to district federal reserve bank
reserve requirement
if reserve requirement is increased the amount of money available for lending is _____, causing interest rates to ______
decreased
increase
rate of interest the Federal Reserve charges a member bank for funds loaned
discount rate
where loans are originated
primary mortgage market
provides constant source of funds to make real estate loans.
loans originated in primary market are SOLD HERE
secondary mortgage market
benefits of a secondary mortgage market
- provides liquidity to primary market so primary lender doesnt run out of funds
final payment on an interest only loan, that includes the full amount borrowed is called a “____” payment
Balloon payment
required by the Real Estate Settlement Procedures (RESPA) Act
That borrowers be informed of all settlement costs involved in the purchase of a home when funds are obtained from a federally regulated lender.
