Non Traditional Mortgage Products Flashcards
How does the SAFE Act define a non-traditional mortgage?
Anything other than a 30 year fixed rate mortgage.
How does the SAFE Act define a traditional mortgage?
30 year fixed rate mortgage.
Conforming mortgages meet standards set by who?
Fannie Mae & Freddie Mac
Conforming mortgages may be sold in the ________?
Secondary market (where lenders sell existing loans to other lenders)
What are non-conforming mortgages?
They do not meet standards of Fannie Mae/Freddie Mac. Cannot be sold on the secondary market. Also called jumbo loans.
What is another name for non-conforming loans?
Jumbo loans.
What is an interest only promissory note also called?
Straight Note
What is a straight note/interest only note?
Calls for payments of interest-only during term of note.
What is a partially amortizing note also called?
Balloon payment/installment note with balloon
What is a partially amortizing note/balloon payment?
Calls for periodic payments of principal/interest during loan term with balloon payment at end of term to pay off balance due.
What is negative amortization?
Monthly payment is not sufficient to cover the accrued interest from previous month.
What is a fully amortizing installment note also called?
Self-Liquidating Loan
What is a fully amortizing note?
Calls for regular payment of principal/interest, calculated to pay off entire balance by end of loan term.
What are the 4 types of promissory notes?
- Straight Note/Interest Only Note
- Partially Amortizing/Balloon Payment
- Negative Amortization
- Fully Amortizing/Self-Liquidating Loan
What is the acceleration clause?
Gives lender right to declare entire loan balance due immediately because of borrower default or for violation of other contract provisions.
What is the alienation clause?
Gives lender certain stated rights when there is transfer of ownership in the property.
What is the alienation clause also known as?
Due On Sale Clause
What is the rate for an ARM made up of?
Index + Margin = Rate (Fully Indexed Rate)
What is the Index (ARMs)?
The index is often referred to as the cost of money.
Index is the part that “adjust” (goes up and down)
What is the Margin (ARMs)?
The Margin, which is sometimes referred to as a spread, remains fixed for the life of the loan.
What are the 3 components of an ARM?
- Index
- Margin
- Rate
What are buydown plans also known as?
Discount points
What are buydown plans (discount points)?
Money paid up front to buy-down interest rate and/or lower monthly mortgage payments
Who can pay for buydown plans?
Borrower, seller, builder, etc.
What are the 2 types of buydown plans (discount points)?
Permanent buy downs reduce payments for life of loan.
Temporary buy downs reduce payments for a specific period of time.
1 Point = __ % of the loan amount
1%
How old must a borrower be in order to qualify for a Reverse Mortgage?
62 years old
What does a reverse mortgage do?
Allows qualified borrowers (62 and older) to convert equity in home without selling or making payments
What happens to the loan in a reverse mortgage?
Balance of loan rises as equity shrinks (rising debt, falling equity)
What is FHA’s Reverse Mortgage?
HECM - Home Equity Conversion Mortgage
What 4 reasons would a Reverse Mortgage end?
When last surviving borrower:
- Dies
- Sells the home
- Non-payment of taxes and insurance
- Ceases to live in home for 12 consecutive months
What is a Hybrid ARM?
An ARM with an initial fixed rate period greater than one year (period). For example, 3/1, 5/1, 7/1, or 10/1 ARMs.
How many payments would a borrower make with a bi-weekly mortgage plan?
26 annual payments (equals1 extra monthly payment each year)
What does a blanket mortgage cover?
More than one parcel of land or lot. Usually used to finance subdivision developments.
What is a bridge mortgage? (swing loan)
Occurs between the termination of one mortgage and the beginning of the next. When the next mortgage is taken out, the bridge mortgage is repaid.
What is a Home Equity Loan?
Usually a one-time loan for a specific amount of money/specific purpose; a closed-end loan.
What is a Home Equity Line of Credit (HELOC)?
Money that is available to the homeowner to be borrowed as needs arise; an open-end loan.
What is a package mortgage?
A mortgage that includes personal property, like appliances, in the property sale and all are financed together in one contract.
