chapter 5 financing terms and cash equivalency Flashcards
“A pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions.
mortgage
Mortgages that are neither insured nor guaranteed by an agency of the government, although they may be privately insured.
conventional mortgage
A mortgage in which a party other than the borrower assures payment in the event of default, e.g., a VA-guaranteed mortgage or a SBA-guaranteed mortgage
gauranteed
A mortgage in which a party other than the borrower assures payment on default by the mortgagor in return for the payment of a premium, e.g., FHA-insured mortgages, private mortgage insurance (PMI)
Insured mortgages
A mortgage that has priority over all other mortgage liens on a property
first mortgage
A lien placed on property after a previous lien has been made and recorded; a lien made subordinate to another by agreement; e.g., second and third mortgages; also called second lien or third lien
junior liens
“A pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions” is the definition of a Note Mortgage Bond Lien
mortgage
A property has a first mortgage of $120,000, a second mortgage of $30,000, and a third mortgage of $15,000. It is foreclosed and sold for $145,000. The holder of the third mortgage gets $\_\_\_\_\_\_\_\_ and the holder of the second mortgage receives $ \_\_\_\_\_\_\_\_\_. 0, $15,000 $15,000, $15,000 $5,000, $30,000 0, $25,000
0, $25,000
Which of the following is a guaranteed loan? VA FHA Conventional ARM
VA
The process of retiring a debt or recovering a capital investment, typically through scheduled, systematic repayment of the principal
amortization
A mortgage with an interest rate that does not vary over the life of the loan.
fixed rate mortgage
A mortgage that is not fully amortized at maturity and requires a lump sum, or balloon, payment of the outstanding balance
balloon mortgage
A debt secured by real property in which mortgage payments are usually projected to match increases in the borrower’s income. The periodic payments start out low and gradually increase
Graduated payment mortgage
A debt secured by real estate with an interest rate that may move up or down following a specified schedule or in accordance with the movements of a standard or index to which the interest rate is tied
adjustable rate mortgages
A type of mortgage whereby age-qualified homeowners systematically borrow against the equity in their homes, receiving regular (usually monthly) payments from the lender. Borrowed funds and accrued interest come due when the last surviving borrower dies or permanently vacates the premises. Under current HUD guidelines, all of the mortgagors must be at least 62 years of age. When the loan is due, the estate usually has approximately twelve months to repay the balance of the reverse mortgage or sell the home to pay off the loan amount. All remaining equity is paid to the vacating homeowner or the estate. An FHA insurance program ensures that the vacating homeowner or estate is not liable if the loan balance exceeds the value of the home at the time the loan is due. Also called a reverse-annuity mortgage or home equity conversion mortgage
reverse mortgage
A percentage of the loan amount that a lender charges a borrower for making a loan; may represent a payment for services rendered in issuing a loan or additional interest to the lender payable in advance; also called points. Each discount point is 1% of the original loan amount
points
The primary sources of mortgage capital were:
State or federally chartered savings banks
Savings & Loans
Commercial banks
Credit unions
n the old days, if banks wanted to loan out funds for mortgages, the sources were limited to:
Depositors
Sale of stock or shares of ownership in the bank or thrift
Repayment of existing mortgages
Borrowing of funds from the Federal Reserve.
A market created by government and private agencies for the purchase and sale of existing mortgages, which provides greater liquidity for mortgages. Fannie Mae, Freddie Mac, and Ginnie Mae are the principal operators in the secondary mortgage market
secondary mortgage market
A purchaser bought a property for $215,000, put 15% down and borrowed the rest at 6.75% interest for 25 years. The lender charged 2.5 points at the closing. How much was paid for the points? $2,150 3,267.50 $4,568.75 $5,723.40
$4,568.75
215,000 x .15 = 32,250
215,000-32,250 = 182,750
182,750 x .025 = 4,568.75
An ARM is Another term for a balloon mortgage An adjustable rate mortgage An amortized rebate mortgage A mortgage with graduated payments
an adjustable rate mortgage
The primary participants in the secondary mortgage market are FHA and VA Fannie Mae and FHA Freddie Mac, Ginnie Mae and HUD Fannie Mae, Freddie Mac, and Ginnie Mae
Fannie Mae, Freddie Mac, and Ginnie Mae
A contract in which a purchaser of real estate agrees to pay a small portion of the purchase price when the contract is signed and additional sums, at intervals and in amounts specified in the contract, until the total purchase price is paid and the seller delivers the deed; used primarily to protect the seller’s interest in the unpaid balance because foreclosure can be exercised more quickly than it could be under a mortgage. Also called contract for deed; installment (sale) contract”
land contract
a variation of seller financing and offers buyers an alternative to a second mortgage. The seller keeps the existing mortgage on behalf of the buyer, plus lends additional money to cover the price paid above the balance of the underlying loan.
wrap-around contract
The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress
market value
Financing terms typically impact the
interest rate or the payment amount of the mortgage.
A lump-sum payment (or series of payments) to the lender that reduces the interest payments of the borrower. The cost of the buydown is usually reflected in the price paid and can be expressed as a percentage of principal.
buy down
simple interest formula
Principal x Rate x Time = Interest
compound interest formula
Principal x (1 + interest rate)n = Future value
present value formula. Used to convert future cash flows for income property
Future value ÷ (1 + interest rate) n = Present value
Market Value of residential property is determined on the assumption that the subject property would be:
Purchased by a typical buyer; and
Paid for in cash or its equivalent such as financed with a conventional mortgage that was obtained on the open market
Let’s assume that a purchaser has agreed to buy a property for $125,000 and will put down $25,000. The current interest rate for mortgages is 10% and most loans are available for a 30 year period. The seller has agreed to provide a 30 year mortgage at only 8% interest. What is the cash equivalent value of the sale due to the favorable financing?
The monthly payment for a $100,000 loan at 10% interest would be $877.57.
The monthly payment for a $100,000 loan at 8% interest would be $733.77.
The buyer will be saving $143.80 each and every month. Wow - that is a total of $143.80 X 360 months or $51,768.
Mortgages that are either insured by the FHA or guaranteed by the VA:
Are treated the same as any other type of financing during an appraisal
Tend to offer favorable terms
Are designed for people requiring a second mortgage
Do not require appraisals
tend to offer favorable terms
Cash equivalency adjustments are typically made when
A property was purchased for all cash
A property needed repairs at the time of sale
Steep inflation has impacted property values
A transaction involved non-market financing
a transaction involved non-market financing
Another name for a land contract is a(n) Deed of trust Leasehold contract Installment sale contract Wrap-around contract
installment sale contract
A type of mortgage designed for retirees and other fixed-income homeowners who owe little or nothing on their homes is called a \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ mortgage. Senior Graduated annuity Equity deferred Reverse annuity
reverse annuity
Most \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_were chartered primarily to provide residential mortgages for the local areas. Payday lenders Savings and loans Commercial banks Credit unions
savings and loans
Mortgage assumptions are Illegal Attractive when rates are rising Attractive when rates are falling Always permitted
attractive when rates are rising
A “point” is \_\_\_% of \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. 1, sales price 1, loan amount 2, sales price 1, closing costs
1, loan amount
