Mortgage Products & Interest Rates

Question 1

interest on ARM

Answer 1

total of the index rate & the margin

Question 2

index

Answer 2

measure of interest rates based on a specific index

Question 3

margin

Answer 3

set by the lender and represents the lender’s costs in making the loan; expressed as a percentage and does not change over the life of the loan

Question 4

fully-indexed rate

Answer 4

lender’s margin plus the index

Question 5

start rate

Answer 5

initial interest rate, may be fully -indexed rate or a lower rate in place for a specific period of time (also discounted rate, introductory rate, teaser rate)

Question 6

adjustment period

Answer 6

the period of time between rate changes on an ARM

Question 7

CHARM

Answer 7

consumer handbook on adjustable rate mortgages

Question 8

CHARM Booklet

Answer 8

additional ARM disclosures made to borrower

Question 9

option ARMs

Answer 9

minimum payment, interest only, 30-year fixed, 15-year fixed

Question 10

minimum payment

Answer 10

amortizes the principal balance over 30 years at the start rate which is usually very low; cannot increase by more than 7.5% each year for the first 5 years

Question 11

interest only

Answer 11

for a set period of time, the borrower may pay only the interest due on the loan each month; the payment that will then increase as the loan terms will require the borrower to begin payment on the principal owing

Question 12

30-year fixed

Answer 12

principal balance is amortized over 30 years at the current note rate

Question 13

15-year fixed

Answer 13

the principal balance is amortized over 15 years at the current note rate

Question 14

balloon loans

Answer 14

partially-amortized; has equal monthly payments required over the term of the loan that do not pay off the loan in its entirety; at the end the borrower either pays the “balloon payment” or refinances

Question 15

graduated payment mortgage (GPM)

Answer 15

offers a borrower lower initial payments over the first few years of the loan; these payments do not cover all of the interest due; the unpaid interest is added to the principal balance outstanding, resulting in negative amortization

Question 16

service release premium (srp)

Answer 16

the amount paid to the lender by a person acquiring the loan on the secondary mortgage market

Question 17

yield spread premium (YSP)

Answer 17

th eamoutn paid by a lender to a broker or loan originator for closing a loan at an interest rate that is higher than the par rate; aka borrower credits

Question 18

discount points/ buy-downs

Answer 18

equal to 1% of the loan amt; used to permanently buy down the interest rate, resulting in a lower rat efor the entire term