Chapter 13 Flashcards
Describe how a constant payment loan works
a loan which is repaid by equal and consecutive instalments that include both principal and interest
What is included in a balloon payment?
it includes any payment of principal over and above regular payment
The number of times compound interest is charged or calculated per year (for example, semi annually or monthly) is referred to as the __ __.
compounding frequency
Incurring an obligation to repay a debt in order to invest or consume more than one currently owns is known as __ __.
debt financing
What is the difference between an interest only loan and interest accruing loan?
Interest only loan: repaid with interest only payments until the end of the loan term, where the principal and last interest payment are owed.
An interest accruing loan requires a single lump sum payment of principal and accumulated interest at the end of the loan term.
List the three major sources of mortgage funds
Institutional lenders, private lenders, government
What is amortization
The process of paying off a loan by periodic payments of blended periods and interest.
What is the difference between fully amortized and partially amortized mortgages?
Fully amortized: the loan is completely repaid by payments made over the entire amortization period.
Partially: loan term is shorter than the amortization period, an an outstanding balance exists at the end of the term.
Describe diversification
the process of investing funds in more than one project or industry in order to reduce the risk of unexpected losses.
Define compound interest
Compound interest is interest which, during the life of the loan, is charged or calculated at regular intervals and if not immediately paid (as in an interest-only loan) will, in subsequent periods, earn interest itself (as in an interest accruing loan).
