Chapter 14 – Introduction to Mortgage Finance Flashcards
What is the difference between face value and book value?
Face value is the amount of money the borrower promises to repay at the contract rate of interest.
Book value is the outstanding balance of the loan at any particular point in time.
Define a partially amortized constant payment loan.
A partially amortized constant payment loan is a mortgage loan where the regular payments of principal and interest are calculated to repay the debt over an amortization period that is longer than the loan term.
TRUE OR FALSE? Brokerage and legal fees are paid by the borrower and must be paid up front before the loan is disbursed.
False. Brokerage, legal, and other fees can be subtracted from the gross amount of the loan or added on top of the funds advanced; they do not necessarily have to be paid up font before the loan is disbursed.
A _______ mortgage loan has equal payments through the life of the loan.
constant payment
List the five characteristics of mortgage loans as investments.
- Unique
- Illiquid
- Long repayment terms
- Significant administrative work
- Require a large capital outlay
A ___________ loan has an equal amount of principal repaid every interest compounding period, plus interest for the period.
straight line principal reduction
In an ______ mortgage, a borrower is allowed to prepay a portion of their mortgage or the entire amount at any time.
open
Define an interest accruing loan.
A loan where no payments of interest and no repayments of principal are made during the life of the loan. The full amount of principal and all interest accumulated are payable when the mortgage contract expires.
The ________ is the time that it takes to fully pay off a loan, given the required periodic payments.
amortization period
TRUE OR FALSE? If the market rate is higher than the contract rate on the mortgage, the market value of the offer will be less than the stated offer price.
True
