Chapter 8 - Real Estate Finance: Loans Flashcards
promissory note
an IOU, a promise to repay, and the evidence of the debt. It is a negotiable instrument.
interest
rent paid for the use of money (capital).
usary
charging an interest rate that is in excess of the state established legal limits.
ie. a usarious rate
simple interest
The interest charged on most real estate loans is ____.
-interest paid only on the principal owed
compound interest
the interest computed on the principal and any unpaid accumulated interest
Usually paid in saving account
prime rate
the rate charged by commercial banks to their most credit worthy customers.
ie. A Paper loans
discount rate
the rate charged by the Federal Reserve Bank to the member banks
Fact: Promissory Note
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.
interest only loan
straight loan
term loan
A loan that calls for the payment of the interest only until the maturity date when the entire principal is due and payable
amortization
the liquidation of a finanacial obligation through regular installments of principal and interest
partially amortized installment note
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
balloon payment
the last installment on a partially amortized installment note
fully amortized note (level payment loan)
a loan with a fixed interest rate and level payments for the life of the loan.
biweekly payments
the borrower makes 26 payment (pays 13 months worth) and will pay less interest because the loan term is shortened.
adjustable-rate mortgage (ARM)
mortgage in which the interest rate is tied to a movable economic index
ARM Term
Index
ARM Term
Econmic indicator used to calculate interest-rate adjustments
ARM Term
Qualifying Rage
ARM Term
Discounted initial interest rate, often a teaser rate that is below a fully indexed rate.
ARM Term
Margin
ARM Term
Number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment
ARM Term
Peridic Cap
ARM Term
Caps that limit the interest rate increase from one adjustment period to the next
ARM Term
Lifetime Cap
ARM Term
Caps that limit the interest rate increase over the life of the loan
ARM Term
Payment Cap
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
SECURITY INTRUMENTS
What are the three common security intruments
SECURITY INTRUMENTS
- Deed of Trust
- Mortgage
- Contract for Deed (Seller Financing)
SECURITY INSTRUMENTS
Collateral, or security
SECURITY INSTRUMENTS
is property pledged or hypothecated by the borrower as security for a loan
DEED OF TRUST
How many parties are there to a Deed of Trust?
What are they?
DEED OF TRUST
3
- Borrower (Grantor)
- Lender (Beneficiary)
- neutral third party (Trustee)
SECURITY INSTRUMENT - DEED OF TRUST
Deed of Trust
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
SECURITY INSTRUMENT - MORTGAGE
How many parties are there to a Mortgage?
SECURITY INSTRUMENT - MORTGAGE
2
- Mortgagor (Borrower)
- Mortgagee (Lender)
SECURITY INSTRUMENT - MORTGAGE
What is a mortgage?
SECURITY INSTRUMENT - MORTGAGE
a security intrument that hypotecates the borrower’s property as collateral for a promissory note.
satisfaction of mortgage
upon final pament and on demand, the mortgagee signs a ____ that the debt is satisfied
MORTGAGE
Lien Theory State
MORTGAGE
States that view a mortgage as merely a lien against the property are called ___
MORTGAGE
Title Theory State
MORTGAGE
Those state that recognize the lender as the owner of the property are called ___
MORTGAGE
Intermediate Theory States
MORTGAGE
the lender can take possession of the mortgaged real estate on default in a ____ Theory state
