Mortgages, Deeds Of Trust, & Lending Practices Flashcards
Discount Points are paid to the lender to…?
Lower the interest rate on a loan.
Lender charges points to…?
Increase yield on a loan.
Each point increases loan yield to lender by…?
1/8%
What is Leverage?
Using borrowed money to finance an investment.
The higher the LTV…
The higher the leverage
The DISADVANTAGE of high leverage is…?
Greater risk of default on the loan.
The ADVANTAGE of leverage is…?
Being able to control a large asset with little cash investment.
The formula for EQUITY…
Market Value
(-)Total debt today
————————–
= EQUITY
The formula for the loan-to-value (LTV) ratio aka mortgage ratio is…?
Mortgage Amt
➗
Price or Value
Loan Value is whichever is lower, sales or appraisal price.
Acceleration Clause
The lender may demand full payment in case of default.
Defeasance Clause
When debt is paid (mortgage/deed of trust), lien must be removed.
Due-on-Sale Cause / Alienation Clause
When property is sold, lender may demand immediate payment of entire debt.
Power-Of-Sale Clause
Standard in deed of trust - optional in mortgage.
Gives the trustee/mortgagee the power to foreclose w/o going to court (nonjudicial).
Short Sales
A
Budget Mortgage
Most common.
Payments include debt service and insurance escrow.
PITI
PRINCIPAL & INTEREST = Debt Service
TAXES & SERVICE = Escrow
Package Mortgage
Real property ➕ personal property financed.
Example: furnished condo…
Blanket Mortgage
Typically used by developers.
More than one parcel pledged as collateral.
Partial Release Clause
(Blanket Mortgage)
Allows individual parcels to be released from lien as balance is paid w/o triggering a due on sale clause.
Payment for Releases
(Blanket Mortgage)
Not necessarily in equal amounts ( i.e., first property sold will have a larger payment amount, increasing owner’s equity.)
Construction Mortgage
Interim financing made available in installments (obligatory advances) as improvements completed.
Typically adjustable-rate/short term loans.
Lender may require a commitment for “take out” w/ permanent financing upon completion of the collateral property.
Home - Equity Loan
Truth in Lending Act requires all home equity loans to have a 3 business day right of recession.
Borrows against equity in the home.
