Non Traditional Mortgage Products Flashcards
Nontraditional Mortgage
SAFE Act defines a non traditional mortgage as “anything” other than a 30 -year fixed rate mortgage
Conforming Mortgage
- “Meet” standards set by Fannie Mae and Freddie MAC
- “May be” solid in the secondary
Non Conforming Mortgage
- “Do not” meet standards of Fannie Mae/Freddie Mac
- “Cannot” be sold on the secondary market
- Also called “jumbo loan”
Subprime Loans
“Allow MORE RISK” than are allowed in the conforming loan market
Secondary Financing
- Buyer borrows money from “another source” (other than the primary part of the purchase price or closing costs.
- Traditionally, a second lender might require 5% down payment.
Mortgage Repayment Terms
- Fixed rate - Loan terms remain constant for the life of the loan. Loan terms are generally 15 to 30 years.
- Interest only - payment mortgage (straight note) - Period reduced payments, for a specified time, then payment increases to fully amortize by end of term
- Adjustable Rate Mortgages (ARMs) - interest rate periodically adjusted to fluctuations in the cost of money
4 Types of Promissory Notes
- Straight Note/Interest Only Note: Calls for payments of interest-only during term of note, with a
- Partially Amortizing installment Note/Installment Note with Balloon: Calls for periodic payments of principal/interest during loan terms with balloon payment at end of term to pay off balance due
- Negative amortization- Monthly payment is not sufficient to cover the accrued interest from previous month
- Fully Amortizing Installment Note: Calls for regular payment of principal/interest calculated to pay off entire balance by end of loan term. (Self liquidating loan)
Acceleration Clause vs Alienation Clause
Acceleration Clause - Gives lender right to declare entire loan balance due “immediately” because of borrower “default” or for violation of other contract provisions.
Alienation Clause - Gives lender certain stated rights when there is “transfer of ownership” in property (AKA due on sale clause)
Adjustable Rate Mortgage
Index + Margin = Rate (Fully Indexed Rate)
- The “Index” is often referred to as the cost of money
- The “Margin” which is sometimes referred t as a spread, remains fixed for the life of the loan. The margin remains the same for the life of the loan.
Buy down Plans
(Discount points) paid to buy down interest rate and/or lower monthly mortgage payments.
- May be paid by the borrower, seller, builder, etc.
- Permanent buy downs reduce payments for life of loan.
- Temporary buy downs reduce payments for a specific period of time.
- “Point = 1% of the loan amount”
Reverse Mortgage
- Allows qualified borrower (62 and older) to convert equity in home without selling or making payments
- Balance of loan “rises as equity shrinks” (rising debt, falling equity)
- Most popular - FHA’s Home Equity Conversion Mortgage (HECM)
- “Tenure” payment option - equal monthly payments while living in property
*Genrally due or terminated when last surviving borrower:
- Dies
- Sells the home
- Cease to live in home for 12 “consecutive months”
- Non Payment of Taxes and Insurance
Balloon
Also known as a “partially amortized loan”. Is a type of fixed rate mortgage with a monthly payment “based on a 30 year schedule”.
Hybrid ARM
An adjustable rate mortgage with an initial fixed rate greater than one year (period). For example, 3/1, 5/1, 7/1, or 10/1 ARMs.
Bi-Weekly Mortgage
Payment plan on fixed rate mortgage set up like a standard 30 year conventional loan but payments are made every two weeks instead of every month.
“The 26 annual payments equal one extra monthly payment each year”.
Blanket Mortgage
Covers more than one parcel of land or lot, and is usually used to finance subdivision developments.
Usually has a “partial release clause”, allowing the borrower to pay a certain amount to release some of the lots with mortgage continuing to cover the remaining lots.
