Chapter 8 - Real Estate Finance: Loans

Question 1

promissory note

Answer 1

an IOU, a promise to repay, and the evidence of the debt. It is a negotiable instrument.

Question 2

interest

Answer 2

rent paid for the use of money (capital).

Question 3

usary

Answer 3

charging an interest rate that is in excess of the state established legal limits.

ie. a usarious rate

Question 4

simple interest

Answer 4

The interest charged on most real estate loans is ____.

-interest paid only on the principal owed

Question 5

compound interest

Answer 5

the interest computed on the principal and any unpaid accumulated interest

Usually paid in saving account

Question 6

prime rate

Answer 6

the rate charged by commercial banks to their most credit worthy customers.

ie. A Paper loans

Question 7

discount rate

Answer 7

the rate charged by the Federal Reserve Bank to the member banks

Question 8

Fact: Promissory Note

Answer 8

The manner in which the loan is repaid is described in the terms of the promissory note.

Some notes are interest only and some aare amortized.

Question 9

interest only loan

straight loan

term loan

Answer 9

A loan that calls for the payment of the interest only until the maturity date when the entire principal is due and payable

Question 10

amortization

Answer 10

the liquidation of a finanacial obligation through regular installments of principal and interest

Question 11

partially amortized installment note

Answer 11

regular, level payments on the principal and interest during the term of the loan.

The last installment, called a balloon payment, is much larger than the other payments

Question 12

balloon payment

Answer 12

the last installment on a partially amortized installment note

Question 13

fully amortized note (level payment loan)

Answer 13

a loan with a fixed interest rate and level payments for the life of the loan.

Question 14

biweekly payments

Answer 14

the borrower makes 26 payment (pays 13 months worth) and will pay less interest because the loan term is shortened.

Question 15

adjustable-rate mortgage (ARM)

Answer 15

mortgage in which the interest rate is tied to a movable economic index

Question 16

ARM Term

Index

Answer 16

ARM Term

Econmic indicator used to calculate interest-rate adjustments

Question 17

ARM Term

Qualifying Rage

Answer 17

ARM Term

Discounted initial interest rate, often a teaser rate that is below a fully indexed rate.

Question 18

ARM Term

Margin

Answer 18

ARM Term

Number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment

Question 19

ARM Term

Peridic Cap

Answer 19

ARM Term

Caps that limit the interest rate increase from one adjustment period to the next

Question 20

ARM Term

Lifetime Cap

Answer 20

ARM Term

Caps that limit the interest rate increase over the life of the loan

Question 21

ARM Term

Payment Cap

Answer 21

CARM Term

Caps that limit how much the monthly payment may change, either each time the pament changes or during the life of the mortgage.

____ may lead to negative amortization

Question 22

SECURITY INTRUMENTS

What are the three common security intruments

Answer 22

SECURITY INTRUMENTS

1. Deed of Trust
2. Mortgage
3. Contract for Deed (Seller Financing)

Question 23

SECURITY INSTRUMENTS

Collateral, or security

Answer 23

SECURITY INSTRUMENTS

is property pledged or hypothecated by the borrower as security for a loan

Question 24

DEED OF TRUST

How many parties are there to a Deed of Trust?

What are they?

Answer 24

DEED OF TRUST

3

1. Borrower (Grantor)
2. Lender (Beneficiary)
3. neutral third party (Trustee)

Question 25

SECURITY INSTRUMENT - DEED OF TRUST

Deed of Trust

Answer 25

SECURITY INSTRUMENT - DEED OF TRUST

a security intrument that conveys title of real property from a trustor (borrower) to a trustee (neutral third party) to hold as security for the beneficiary (Lender) for payment of a debt

Question 26

SECURITY INSTRUMENT - MORTGAGE

How many parties are there to a Mortgage?

Answer 26

SECURITY INSTRUMENT - MORTGAGE

2

1. Mortgagor (Borrower)
2. Mortgagee (Lender)

Question 27

SECURITY INSTRUMENT - MORTGAGE

What is a mortgage?

Answer 27

SECURITY INSTRUMENT - MORTGAGE

a security intrument that hypotecates the borrower’s property as collateral for a promissory note.

Question 28

satisfaction of mortgage

Answer 28

upon final pament and on demand, the mortgagee signs a ____ that the debt is satisfied

Question 29

MORTGAGE

Lien Theory State

Answer 29

MORTGAGE

States that view a mortgage as merely a lien against the property are called ___

Question 30

MORTGAGE

Title Theory State

Answer 30

MORTGAGE

Those state that recognize the lender as the owner of the property are called ___

Question 31

MORTGAGE

Intermediate Theory States

Answer 31

MORTGAGE

the lender can take possession of the mortgaged real estate on default in a ____ Theory state