Chapter 13 - Management Of Individual Loans Flashcards
When a borrower does not make any mortgage payments that are owed to the lender, it is known as:
Default
Define prepayment penalties?
In a closed mortgage, a lender who allows the borrower to prepay part of the outstanding balance will charge a prepayment penalty. The penalty is the greater of three months interest or the interest rate differential on the amount to be prepaid.
The period in time between the date mortgage funds are advanced and the beginning of the first payment period is known as the __________ _________ ________.
Known as the interest adjustment period
What is the term used when the borrower is late in making mortgage payments?
Arrears
Consider a fully amortized loan. If the periodic payments are rounded up to the next dollar, how will this affect the size of the final payment.
Rounding up payments allows the borrower to pay off the loan faster, and pay less interest in total. The final payment will become smaller.
What is book value?
You calculate the Outstanding Balance at the period of time that has elapsed.
Ex. Four (4) years ago means You calculate the Outstanding Balance at the period of time that has elapsed.
Ex. Four (4) years ago means OSB48
Balloon Payments
Any partial prepayment of Principal:
— lump sums
— higher monthly payments
e.g. 10 + 10 ale payments that are 10% higher and make a lump sum equal to 10% of the OSB Each Year.
The effect of decreasing the length of the amortization period.
Mortgages ate assets and can be bought and sold.
Book Value of the Mortgage us simply the OSB at a particular period of time.
Market Value is really determined by the market value of current market interest rates
Investment Value is investors subjective required yield.
If sold greater than OSB (book value) is sold at a PREMIUM
Less than BV, DISCOUNT
SOLD at BV is PAR.
Reverse Mortgage
Enter Maximum amount in FV as NEGATIVE. this means you will have to pay Back to bank
If expected payment is known enter in PMT as POSITIVE.
PV is ZERO.
ENTER N. To find number of months you will receive payment.
Refinancing the Property
Calculate 2 Streams of PV and payment
Interest Rate Differential
Lender recovering lost interest payment
Difference between contract rate and current rate.
If paid 2 years early, you will difference in rates. The current market rate will be for 2 year mortgages.
- Find OSB End of Term under contract rate
2.
Final Payment Calculation.
