Chapter 13 - Learning Objectives & Key Terms

Question 1

Adjustable Rate Mortgage (ARM)

Answer 1

A mortgage that can be adjusted periodically by the lender.

Question 2

Amortized Mortgage

Answer 2

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.

Question 3

Balloon Payment

Answer 3

A single, large payment made to pay off the debt in full.

Question 4

Biweekly Mortgage

Answer 4

Mortgage Payments are due every 2 weeks.

Question 5

Conforming Loan

Answer 5

A conventional loan that meets the requirements of Freddie Mac and Fannie Mae.

Question 6

Disintermediation

Answer 6

The process of removing the middleman or intermediary from future transactions.

Question 7

Home Equity Loan

Answer 7

A loan which is based on the equity in the borrower’s home.

Question 8

Index

Answer 8

The rate to which the interest rate on an adjustable rate mortgage is tied.

Question 9

Intermediation

Answer 9

The process whereby financial intermediaries channel funds from people who have surplus capital to those who require liquid funds.

Question 10

Level Payment Plan

Answer 10

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.

Question 11

Lifetime Cap

Answer 11

Tells a borrower the maximum interest rate they could pay during the life of a loan, usually an adjustable rate mortgage.

Question 12

Margin

Answer 12

Used in an adjustable rate mortgage as part of the calculation of the interest rate.

Question 13

MIP (Mortgage Insurance Premium)

Answer 13

The amount paid by a mortgagor for mortgage insurance on an FHA-insured loan.

Question 14

Mortgage Broker

Answer 14

A broker who arranges a mortgage loan between a lender and a borrower for a fee.

Question 15

Mortgage Fraud

Answer 15

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.”

Question 16

Mortgage Loan Originator (MLO

Answer 16

A mortgage loan originator needs to be licensed and their role is to work with a borrower to complete a mortgage transaction.

Question 17

Negative Amortization

Answer 17

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.

Question 18

Nonconforming Loans

Answer 18

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.

Question 19

Package Mortgage

Answer 19

A loan covering both real and personal property.

Question 20

Partially Amortized / Balloon Mortgage

Answer 20

A special type of liability or obligation involving partial amortization during the loan term and a balloon payment on the loan maturity date.

Question 21

Payment Cap

Answer 21

A consumer safeguard that limits the amount by which the monthly payment on an adjustable rate mortgage can change.

Question 22

Periodic Cap

Answer 22

Refers to the maximum interest rate adjustment permitted during a given period of an adjustable rate loan or mortgage.

Question 23

Purchase Money Mortgage

Answer 23

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.

Question 24

Reverse Annuity Mortgage

Answer 24

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.

Question 25

Teaser Rate

Answer 25

A low, adjustable introductory interest rate used to attract potential customers.

Question 26

UFMIP

Answer 26

Up Front Mortgage Insurance Premium, which is required for most FHA single family mortgage insurance programs.