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MLO Exam > General Mortgage Knowledge Definitions > Flashcards

General Mortgage Knowledge Definitions Flashcards

1
Q

The true cost of financing. The amount financed and the cost to finance is
reflected in the Annual Percentage Rae.

A

Annual Percentage Rate (APR)

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2
Q

which is higher, APR or fully indexed note rate?

A

Generally, the APR is higher than the

fully indexed note rate.

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3
Q

A calculation or formula a lender uses that outlines the required payments,
which includes the monthly principal and interest required to extinguish a debt
over a predetermined period

A

Amortization (schedule)

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4
Q

A unit which equals 1/100 of 1%

A

Basic Points

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5
Q

Items of value owned by an individual

A

Asset

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6
Q

50 basis points equals?

A

.5%

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7
Q

A fee, referred to as a discount fee or discount points paid to a lender to
receive a rate below the lenders base rate or par rate. Also referred to as
permanent buy down

A

Buy down

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8
Q

A percentage limitation on how high or low an adjustable rate may increase or
decrease.

A

Cap

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9
Q

The cost associated with closing a mortgage loan transaction

A

Closing costs

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10
Q

A non-cash accounting expense reducing the value of an asset.

A

Depreciation

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11
Q

The difference between the market value of a property and the total
outstanding obligations

A

Combined Loan to Value (CLTV)

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12
Q

An index used in adjustable rate mortgages

A

Cost of funds index (COFI)

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13
Q

Failing to meet the monthly interest expense and deferring the outstanding
amount to a future date. Deferred interest has the impact of increasing the
principal balance and is also referred to as negative amortization

A

Deferred interest

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14
Q

The Fannie Mae electronic underwriting vehicle

A

Desktop Underwriter (DU)

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15
Q

A fee which is a percentage of the loan amount that is used to buy down the
mortgage interest rate

A

Discount and Discount

Points

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16
Q

A deposit used in a real estate purchase agreement. The amount is generally
held by the real estate broker, reflected as a cash asset on the loan application
and credited at the closing

A

Earnest Money Deposit

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17
Q

The difference between the market value of a property and the amount of
outstanding debt against the property

A

Equity

18
Q

A third party agent that receives, holds, and/or disburses certain funds or
documents upon the performance of certain conditions. For example, an earnest
money deposit is put into escrow until the transaction is closed. Only then can
the seller receive the deposit.

A

Escrow

19
Q

A trust account that is established to hold funds allocated for the payment of
real estate taxes, hazard or insurance premiums, etc., as they are received each
month and until such time as they are disbursed to pay the related bills.

A

Escrow Account

20
Q

A mortgage that has priority over all other liens

A

First Mortgage

21
Q

A mortgage where the interest rate remains the same for the life of the loan

A

Fixed rate mortgage

22
Q

A method by the lender to accelerate the due date of the loan balance based on
a borrowers default on the loan. If the borrower is unable to meet the new
requirements the lender can remove the borrowers interest in the property
either through a judicial or non-judicial process based on state law

A

Foreclosure

23
Q

An interest rate based on the index and the margin

A

Fully Indexed Rate

24
Q

Monthly income before deductions

A

Gross Monthly Income

25
Q

A market instrument that varies with market conditions. Rates tied to an index
can adjust based on the changes in the index

A

Index (plural is indices)

26
Q

One of many indices used in the residential mortgage industry for adjustable
rate mortgages

A

11th District COFI

27
Q

The cost of borrowing money

A

Interest

28
Q

Where principal and interest payments are due just the interest is paid. The
principal remains the same when an interest only payment is made

A

Interest Only

29
Q

The rate applied to the cost of borrowing money. The higher the risk then higher
the rate

A

Interest Rate

30
Q

The loan amount as a percentage of the purchase price or appraised value
whichever is lower. LTV is always based on the first or senior mortgage position

A

Loan to Value (LTV)

31
Q

One of many indices used in the residential mortgage industry for adjustable
rate mortgages

A

London Interbank Offer

Rate (LIBOR)

32
Q

The highest the rate can increase above the initial fully indexed rate based on
the margin and index

A

Life of Loan Cap

33
Q

A refinance transaction where the borrower can receive cash back of $2,000 or
2% of the loan amount whichever is less

A

Limited Cash-out Refinance

34
Q

The lenders profit which is added to the index to determine the rate which is
referred to as the par rate or the fully indexed rate

A

Margin

35
Q

An instrument that allows a voluntary lien on real property once recorded

A

Mortgage

36
Q

An individual interest in a group of mortgages on the secondary market.
Principal and interest payments are grouped and paid to the individual investors

A

Mortgage Backed Security (MBS)

37
Q

A form of insurance that protects the lender in the event of a borrowers default

A

Mortgage Insurance

38
Q

When the full interest expense of a payment is not met, the interest is deferred
effectively increasing the amount owed. This is considered negative amortization

A

Negative Amortization

39
Q

The difference between the assets owned and any liabilities owed. Positive net
worth means that the assets are worth more than the outstanding liabilities

A

Net worth

40
Q

Taking and signing an application, negotiating terms and rates and the collecting
of documentation for a mortgage loan

A

Origination

41
Q

The fee earned for originating a loan

A

Origination fee

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