Chapter 12 Flashcards
What is a Lien Theory state?
A lien theory state, like Florida, is a state in which the borrower (mortgagor) retains the ownership of the home throughout the mortgage loan period.
What is a Promissory note?
Evidence of a debt
What does a Promissory note contain?
Names of the parties
Interest Rate
Amount borrowed
Repayment terms
Who is the mortgagor in a mortgage?
The borrower (property owner)
Who is the mortgagee in a mortgage?
The lender
When a loan has been repaid, what does the bank have to do?
Send a letter of satisfaction to the mortgagor within 60 days of receiving the final payment
What are the mortgage clauses present in a mortgage?
Defeasance Clause
Escalation Clause
Exculpatory Clause
What is a defeasance clause?
it is a clause which protects the borrower (mortgagor) because it provides protection to the borrower as it prevents the lender from contacting the borrower as long as the borrower is performing as agreed in the mortgage (making payments on time)
What is an escalation clause?
This is a clause that protects the mortgagee (lender) because it allows the lender to increase the interest rate if the borrower is using the home for a purpose different than what was said at the time of purchase, or if the borrower is consistently making late payments
What is an Exculpatory Clause?
This clause protects the mortgagor. It prevents the lender from coming after the borrower for any deficiency from the sale of their foreclosed home.
What are points in a mortgage loan?
They are loan origination fees
1 point = 1% of the loan in dollars
1 point = 1/8 of the interest rate%
What are discount points?
Upfront payment to the lender made in exchange for a lower interest rate. Also known as a buydown.
What is an effective yield?
it is the final interest rate the borrower gets after factoring in the points paid at closing
How would you calculate an effective yield?
multiply the number of points by 1/8
add the resulting percentage to the original interest rate
How do you calculate the Loan to Value ratio?
Divide the amount borrowed by the purchase price of the home
multiply by 100%