Ch. 14 Financing Flashcards

1
Q

Promissory Note

A

‘note’, or ‘financing instrument’, is a borrower’s personal promise to repay the debt according to the agreed terms.

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2
Q

Interest

A

charge for the use of money, expressed as a percentage of the remaining balance of the loan

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3
Q

Usury

A

Charging interest in excess of the maximum rate allowed by law

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4
Q

Loan Origination Fee

A

‘transfer fee’, The processing of a mortgage application

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5
Q

Discount Points

A

used to increase the lender’s yield (rate of return) on its investments (1 discount point = 1%)

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6
Q

Hypothecation

A

the debtor retains the right of possession and control of the secured property, while creditors receive an equitable right in the property (the process of securing the loan to buy property)

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7
Q

lien theory state

A

the mortgagor retains both legal and equitable title to the property that serves as security for a debt

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8
Q

deed of trust

A

a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower.

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9
Q

title theory state

A

In a deed pf trust, or title theory state, the mortgagor actually conveys legal title to the mortgagee and retains equitable title and the right of possession

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10
Q

Acceleration Clause

A

-assists the lender in foreclosure, if a borrower defaults, the lender has the right to accelerate the maturity of the debt. (Lender may declare the entire principal balance due immediately)

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11
Q

Defeasance Clause

A

A mortgage provision indicating that the borrower will be given the title to the property once all mortgage terms are met.

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12
Q

Satisfaction of Mortgage

A

A document generated and signed by a mortgage lender, acknowledging that the borrower has paid off the mortgage loan in full and that the mortgage is not a lien on the property. (Lender is required to execute when the note is fully paid)

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13
Q

“Subject To”

A

Buying “Subject To”- The buyer is not personally obligated to pay the debt in full. Buyer takes title to real estate knowing must make payments on existing loan

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14
Q

Assuming

A

A buyer who purchases a property and ‘assumes’ the seller’s debt becomes personally obligatd for the payment of the entire debt.

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15
Q

Novation

A

The substitution of a new contract for an old one

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16
Q

Alienation Clause

A

(also known as a resale clause, due-on-sale clause, or call clause) in the note, provides that when the property i sold the lender may either declare the entire debt due immediately, or permit the buyer to ‘assume’ the loan at a higher interest rate

17
Q

Amortized Loan

A

each payment partially pays off both principal and interest

18
Q

Straight Loan

A

(also known as a term loan or interest-only loan) essentially divides the loan into two amounts to be paid off separately, periodic payments of interest only, followed by the payment of the principal in full at the end of the term

19
Q

Negative Amorization

A

amount of loan increases (instead of decreasing) -owing more than what the property is worth

20
Q

Index

A

economic indicator that is used to adjust the interest rates in an ARM loan

21
Q

Growing-Equity Mortgage

A

also called rapid-payoff mortgage, uses a fixed interest rate, but payments of principle are increased according to an index or schedule