Chapter 13 - Learning Objectives & Key Terms Flashcards
Adjustable Rate Mortgage (ARM)
A mortgage that can be adjusted periodically by the lender.
Amortized Mortgage
A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.
Balloon Payment
A single, large payment made to pay off the debt in full.
Biweekly Mortgage
Mortgage Payments are due every 2 weeks.
Conforming Loan
A conventional loan that meets the requirements of Freddie Mac and Fannie Mae.
Disintermediation
The process of removing the middleman or intermediary from future transactions.
Home Equity Loan
A loan which is based on the equity in the borrower’s home.
Index
The rate to which the interest rate on an adjustable rate mortgage is tied.
Intermediation
The process whereby financial intermediaries channel funds from people who have surplus capital to those who require liquid funds.
Level Payment Plan
Calculating the total cost of a service over a period of time such as a year then averaging the payments to an amount per month that will cover the total annual bill. Most often used for utility payments.
Lifetime Cap
Tells a borrower the maximum interest rate they could pay during the life of a loan, usually an adjustable rate mortgage.
Margin
Used in an adjustable rate mortgage as part of the calculation of the interest rate.
MIP (Mortgage Insurance Premium)
The amount paid by a mortgagor for mortgage insurance on an FHA-insured loan.
Mortgage Broker
A broker who arranges a mortgage loan between a lender and a borrower for a fee.
Mortgage Fraud
Defined by the FBI as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”
Mortgage Loan Originator (MLO
A mortgage loan originator needs to be licensed and their role is to work with a borrower to complete a mortgage transaction.
Negative Amortization
This is where monthly mortgage payments are less than required to pay both interest and principal and the resulting unpaid balance is added to the loan balance.
Nonconforming Loans
Loans that fail to meet bank criteria for funding either because the loan amount is higher than the conforming loan limit (for mortgage loans) or there is a lack of sufficient credit or the proposed use of the funds is unorthodox.
Package Mortgage
A loan covering both real and personal property.
Partially Amortized / Balloon Mortgage
A special type of liability or obligation involving partial amortization during the loan term and a balloon payment on the loan maturity date.
Payment Cap
A consumer safeguard that limits the amount by which the monthly payment on an adjustable rate mortgage can change.
Periodic Cap
Refers to the maximum interest rate adjustment permitted during a given period of an adjustable rate loan or mortgage.
Purchase Money Mortgage
Also known as seller or owner financing. This is money loaned to the borrower by the seller of a home as part of the purchase transaction usually in situations where the buyer cannot qualify for a mortgage through traditional lending channels.
Reverse Annuity Mortgage
Allows borrowers to cash in some of their home’s equity, without having to sell or move out and is secured against the value of their home.
Teaser Rate
A low, adjustable introductory interest rate used to attract potential customers.
UFMIP
Up Front Mortgage Insurance Premium, which is required for most FHA single family mortgage insurance programs.
