Chapter 10: Financing Techniques Flashcards
What is a term loan (straight loan)
Allows the borrower to make periodic interest only payments for a specific term then the final payment (balloon) is due that is the remaining balance of the loan.
What is a balloon payment
The final payment made at the end of a term loan that’s the full remaining balance on the loan.
What is a fully amortized loan (constant loan)?
A loan that provides periodic payments (usually monthly). These payments include principal and interest.
The periodic payments are equal each month for the term of the loan
How do you find the monthly payment necessary to amortize or “liquidate” a specific loan amount?
- Use an amortization table
- Start with the interest rate on the left
- Follow across the page to find the desired term
- Where it intersects is the monthly amount
What is a partially amortized loan?
A loan that included a series of amortized payments followed by a balloon payment at maturity
How does one determine the balloon payment on a partial amortized loan?
- Use Loan Balance Table (Remaining Balance Table)
- Find table with desired interest rate
- Choose column showing the original life of the loan
- Follow the column to show the current loan age
- The number will be provided
What does loan-to-value ratio mean?
Shows the relationship between what the lender is willing to lend vs. how much the lender’s estimate of the market value that will serve as security
When determining L/V, does a lender use the appraised value or the price of the home?
Whichever is lower
What is the general rule around L/V?
The higher the risk the lower the L/V
Which loans have the highest L/V
Those that are owner-occupied
What is the relationship between risk and yield (interest rate)?
They are proportional. As risk increases, interest rate increases.
What are usury laws?
Laws that limit how much interest rate can be charged
What is an origination fee?
A fee charged by lenders that includes all of their internal fees and charges
What are discount points?
An added fee one can pay to reduce the interest rate on their loan
How much does each discount point equate to?
1/8%
