Mortgages, Deeds Of Trust, & Lending Practices

Question 0

Discount Points are paid to the lender to…?

Answer 0

Lower the interest rate on a loan.

Question 1

Lender charges points to…?

Answer 1

Increase yield on a loan.

Question 2

Each point increases loan yield to lender by…?

Answer 2

1/8%

Question 3

What is Leverage?

Answer 3

Using borrowed money to finance an investment.

Question 4

The higher the LTV…

Answer 4

The higher the leverage

Question 5

The DISADVANTAGE of high leverage is…?

Answer 5

Greater risk of default on the loan.

Question 6

The ADVANTAGE of leverage is…?

Answer 6

Being able to control a large asset with little cash investment.

Question 7

The formula for EQUITY…

Answer 7

Market Value
(-)Total debt today
————————–
= EQUITY

Question 8

The formula for the loan-to-value (LTV) ratio aka mortgage ratio is…?

Answer 8

Mortgage Amt
➗
Price or Value

Loan Value is whichever is lower, sales or appraisal price.

Question 9

Acceleration Clause

Answer 9

The lender may demand full payment in case of default.

Question 10

Defeasance Clause

Answer 10

When debt is paid (mortgage/deed of trust), lien must be removed.

Question 11

Due-on-Sale Cause / Alienation Clause

Answer 11

When property is sold, lender may demand immediate payment of entire debt.

Question 12

Power-Of-Sale Clause

Answer 12

Standard in deed of trust - optional in mortgage.

Gives the trustee/mortgagee the power to foreclose w/o going to court (nonjudicial).

Question 13

Short Sales

Answer 13

A

Question 14

Budget Mortgage

Answer 14

Most common.

Payments include debt service and insurance escrow.

PITI

PRINCIPAL & INTEREST = Debt Service
TAXES & SERVICE = Escrow

Question 15

Package Mortgage

Answer 15

Real property ➕ personal property financed.

Example: furnished condo…

Question 16

Blanket Mortgage

Answer 16

Typically used by developers.

More than one parcel pledged as collateral.

Question 17

Partial Release Clause

Answer 17

(Blanket Mortgage)

Allows individual parcels to be released from lien as balance is paid w/o triggering a due on sale clause.

Question 18

Payment for Releases

Answer 18

(Blanket Mortgage)

Not necessarily in equal amounts ( i.e., first property sold will have a larger payment amount, increasing owner’s equity.)

Question 19

Construction Mortgage

Answer 19

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.

Question 20

Home - Equity Loan

Answer 20

Truth in Lending Act requires all home equity loans to have a 3 business day right of recession.

Borrows against equity in the home.