Chapter 14 Flashcards
PITI
Principle
Interest
Taxes
Insurance
Credit Score
prepared by a credit reporting co. and is based a consumer’s past credit history including income, outstanding loans, number of credit accounts open, outstanding credit lines, number of accounts opened and closed. payment history and credit inquires..
FICO Score
can range from a low of 300 to a high of 850
Lenders will require a minimum score, often dependent upon
Debt to income ratio
A homeowner who is able to provide at least 10% of the purchase price as a downpayment could be expected to incur PITI payment of no more than 28% of the borrowers gross (pre-tax) monthly income
homeowner’s equity
the difference between the market value of the property and the amount still owed on the property
Promissory note
a borrower’s personal promise to repay a debt according to the agreed terms.
It is executed by the borrower (payor) it is a contract with the lender (payee).
The note generally states the amount, time and method of payment and interest rate.
Negotiable Instrument
the payee holds the note may transfer the right to receive payment to a third party
Interest
a charge for the use of money, expressed as a % of the remaining balance of the loan.
Payments in Arrears
payment made at the end of a period
Payments in Advance
Payment made at the beginning of the period
LTV or Loan to Value Ratio
is the percentage of the sales price or appraised value which ever is less, that the lender is willing to lend
Usury
Charging interest in excess of the maximum rate allowed by law.
Loan origination
The processing of a mortgage application
loan origination fee
transfer fee is charged by most lenders to cover the expenses involved in generating the loan.
It is a charge that must be paid to the lender.
typically 1% of the Loan amount
Discount Points
are used to increase the lender’s Yield (rate of return).
The number charged depends on two factors:
1). The difference between the loan’s stated interest rate and the yield required by the lender.
2). How long the lender expects it will take the borrower to pay off the loan
For Borrowers one discount point = 1% of the loan amount and is charged as prepaid interest at the closing
prepayment clause
Requires that the borrower pay a prepayment penalty against the unearned portion of the interest for any payments made ahead of schedule, typically durning the first years of the loan.
Hypothecation
To pledge property as security for an obligation or loan without giving up possession of it.
mortgage
Is a lien on the real property of a debtor.
It is a voluntary, specific lien.
mortgagor
Borrower receives a loan and in return gives a promissory note and mortgage to the lender.
Mortgagee
the lender
Satisfaction of mortgage
a certificate documenting that the loan is paid off.
A Lien Theory State
The mortgagor retains both legal and equitable title to property that serves as security for a debt.
The mortgagee has a lien on the property but the mortgage is nothing more than collateral for the loan.
Statutory right of redemption
the right of a defaulting mortgagor to Redeem (buy back) the property durning a certain period after the foreclosure sale.
Deed of Trust
A three party security instrument. conveys bare legal title (naked title) from the borrower to a third party called the trustee.
The trustee holds legal title on behalf of the lender.
Naked Title
A title without the right of possession.
Title Theory State
The mortgagor actually conveys legal title to the mortgagee and retains equitable title and the right of possession.
Legal title is returned to the mortgagor only when the debt is paid in full.
acceleration clause
to assist the lender in foreclosure, allows the lender to accelerate the loan if the borrower defaults on a loan payment.
defeasance clause
used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan
Satisfaction of mortgage
release or discharge of the mortgage…It’s paid off!
Subject to:
a clause in a contract specifying exceptions or contingencies of a purchase.
assumption of mortgage
buyer assumes the mortgage or deed of trust and agrees to pay the debt.
novation
must be in writing and makes the buyer solely responsible for any default on the loan. The original borrower is freed of any liability for the loan.
alienation clause
aka resale clause or due on sale clause or call clause. provided stat when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender.
subordination agreement
in the event that a second loan has a higher amount owed than a first loan. the first lender subordinates or lowers its lien position to the second lender. To be valid both lenders must sign the agreement.
Amortization
each payment including part of the loan principal, so that the entire principal is paid off by the end of the loan term.
Straight Loan
AKA term loan or interest only loan. essentially divided the loan into two amounts to be paid off separately. Principle is paid off in full at the end of the term.
amortized loan
partially pays off both principle and interest over a term of years. amortize means to kill off. At the end of the loan the full about of the principal and all interest dues is reduced to zero aka direct reduction loans.
fully amortized loan
aka level payment loan. The mortgagor pays a constant amount, usually monthly. The lender credits each payment first to the interest due then to the principal amount of the loan.
negative amortization
process by which the amount of the loan increases. The mortgagor sets a payment cap or maximum amount for payments, but the difference between the payment made and the full payment amount is added to the remaining mortgage balance.
can be underwater on a loan owe more than it is worth.
ARM
Adjustable Rate Mortgage:
Begins at one rate of interest, then fluctuates up or down during the loan term, based on a specified economic indicator.
The Index
an economic indicator that is used to adjust the interest rate in the loan.
Tied to the US Treasury securities.
Margin
Premium added to the index rate Represents the lender’s const of doing business
Growing Equity mortgage
or rapid payoff mortgage uses a fixed interest rate, but payments of principal are increased according to an index or schedule.
balloon payment
a final payment that is at least twice the amount of any other payment.
It is considered partially amortized because some of the principal is paid off.
reverse mortgage
allows a homeowner aged 62 or older to borrow money against the equity built up in his home. The homeowner’s equity diminishes as the loan amount increases.
Foreclosure
a legal procedure in which property pledged as security for a debt is sold to satisfy the debt.
judicial foreclosure
allows the property to be sold by court order after the mortgagee has given sufficient public notice
Nonjudicial foreclosure
no court action is required to force a foreclosure
Strict Foreclosure
deed in lieu of foreclosure:
or a friendly foreclosure.
it is carried out by mutual agreement rather than by lawsuit.
This does not eliminate junior liens.
Redemption
(not allowed in MA)
Equitable right of redemption:
if after default but before the foreclosure sale, the borrower, pays the lender the amount in default, plus costs, the debt will be reinstated.
Statutory Right of Redemption
allow defaulted borrowers a period of time after the sale to redeem their lost property.
Deed to purchaser at Sale
Convey’s whatever title the borrower had if a redemption is not made at a foreclosure sale.
Deficiency judgement
a personal judgement against a borrower who owes more than the foreclosure sale brought in.
Short Sale
the sales price is less than the remaining indebtedness.
