CHP 15 - Real Estate Finance Flashcards
Financing instrument that creates a lien against a property
Mortgage
Promissory Note
Describes the amount of money borrowed, terms and conditions.
If a person takes title to a property “subject to” the mortgage
The person is not personally liable to lender, seller is.
Straight (Interest Only)
Monthly payments all go towards interest. Buyer must pay entire principal or get another loan
Amortized
Principal + Interest - monthly
Fully Amortized Loan
Same payment each month
Straight amortized loan
Differen tamount with each payment. Fixed principal and, interest varies
Balloon Mortgage
One large final payment - this is a partially amortized loan
Adjustable Rate Mortgage (ARM)
Better when interest rates are high. 1980’s
Index
Measure of economic conditions (use as starting point for calculation)
Margin
Usually between 2-3%. THis is added to the index to set interest rate
Most common adjustment periods
3-5 years
Other names for interest rate caps
rate caps
ceilings
lifetime caps
Whats the 1st interest rate cap
The periodic cap - sets teh amoutn of increase or decrease allowed each period
What’s the 2nd interest rate cap
Overall/Aggregate Cap sets a max interest rate increase over life of loan
Payment Cap
ensures a set monthly payment
Negative Amortization Cap
Limits unpaid interest that lender can add to principal balance
2 Types of Mortgages
Conventional
Government-Backed
Gov’t Backed Loans
FHA
DVA
RHS
Benefits to conventional loans
less time
fewer forms
no legal limit on loan amount
lenders are more flexible
Disadvantages to conventional
higher down pymt
prepay penalties
2 Features of fixed rate fully amortized
- interest rate fixed for life
2. The pymnts remain level for life of loan
2 ways to avoid PMI
1) Lender Paid Mortgage Insurance
2) 80-10-10 (1st, 2nd, down pymnt)
Downfall to a straight loan
Interest only
What kinds of limits are placed on interest rate in ARM
caps limit amount of interest borrower can be charged.
Periodic caps limit amount rate can change over time
Law on PMI
Must terminate after 22% equity (78% Loan-to-Value ratio) and current with payments
BUT borrower can request cancellation at 20%
When is a bridge loan used
1) To cover time b/t end of loan and beginning of another
2) To borrow money on an unsold home when seller won’t accept property sale contingency
Purchase Money Mortgage
Buyer borrows from seller in addition to lender
Package Mortgage
Includes all personal property and appliances - used in condo sales
Shared Equity Mortgage
Lender shares in appreciation if and when the property sales
A Builder offers $5K closing cost as an incentive; what type of mortgage is this
Buydown
What’s a release clause and what mortgage has it
Blanket mortgage - Allows for release of individual lots
Reverse Annuity
Lender makes payment to borrower on equity
FHA Loan characteristics
1) Either fixed 10-30 or one year adjustable
2) Max loan term in 30 yrs or 75% of remaining economic life whichever is less
3) Down payments are low (Buyer must have cash down payment and closing costs)
4) Max loan fee is 1% of loan amount, typically paid by buyer
Two Insurance premiums
MIP (Mortage Ins. Pre)
MMI (Mutual Morgage Ins.)
FHA does NOT….
loan funds, they insure bank backed loans
Certificate of Reasonable Value (CRV)
value of property in relation to sales price
GPM Graduated Pymt Mortgage
Monthly pymnt increases each yr and then levels
PAM (Pledged Acct Mortgage)
Borrower contributes a sum into an account pledged to lender
Open End Loan
Expandable loan giving borrow a limit
Allows borrow to take a second loan without paying off the first
Wraparound Mortgage
