Products

Question 1

Open-End Loans

Answer 1

Revolving loans with which both the borrower and lender anticipate repeated transactions. The borrower can typically withdraw a limited amount of funds. Payments depend on the interest due on the actual balance of the loan. HELOCs are a common example in the mortgage industry.

Question 2

Maturity

Answer 2

The time period starting when repayment begins and ending when the last payment is due. It is often, but not always, the loan’s term.

Question 3

Budget

Answer 3

A detailed record of all income earned and all expenses paid for during a specific period of time.

Question 4

Adjustable Rate Mortgage (ARM)

Answer 4

A mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as “Adjustable Mortgage Loans (AMLs)” or “Variable-Rate Mortgages (VRMs)”.

Question 5

Inflation

Answer 5

This is an increase in something. In the mortgage industry, this term normally goes with the increase in interest rates or home values.

Question 6

Option Adjustable Rate Mortgage (ARM)

Answer 6

Refers to an adjustable rate mortgage that offers multiple payment options each month. These are normally a fully amortizing payment over either 30 or 15 years, an interest only payment, or minimum payment that does not require the full amount of interest due. This minimum option normally results in negative amortization.

Question 7

Margin

Answer 7

The number of percentage points the lender adds tot he index rate to calculate the ARM interest rate at each adjustment. It also refers to the lender’s profit margin or cost of doing business.

Question 8

Index

Answer 8

The measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time.

Question 9

Cost of Funds Index (COFI)

Answer 9

An index used to determine interest rate changes for some ARMs.

Question 10

Note Rate

Answer 10

The interest rate stated on a mortgage note.

Question 11

Promissory Note

Answer 11

A borrower’s promise to repay the loan. Otherwise known as “the note,” this legal document lists all the terms of the mortgage. The note also includes important information about a loan, such as the name of the borrower and lender, loan amount, and provisions, including any prepayment penalties or mortgage late fees.

Question 12

Fully-Indexed Rate

Answer 12

In an ARM, this is the interest rate that can be calculated by adding the current index value independent of any caps and the margin.

Question 13

Variance

Answer 13

A special exemption of a zoning law to allow the property to be used in a manner different from an existing law.

Question 14

Cap

Answer 14

A limit, such as one placed on an ARM, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of a mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

Question 15

Periodic Cap

Answer 15

A limit on what the rate can adjust during any adjustment period.

Question 16

Lifetime Cap

Answer 16

A limit, usually expressed as a percentage increase from an initial interest rate, on the range interest rates can increase over the life of an ARM.

Question 17

Payment Shock

Answer 17

A surprising large increase in a payment on an ARM that may catch the borrower unaware.

Question 18

Balloon Mortgage

Answer 18

A mortgage that typically offers low rates for an initial period of time, usually 5, 7, or 10 years. After that time period, the balance is due or the loan is refinanced by the borrower. These are similar to ARMs but are riskier, since the future of the loan rate my be higher.

Question 19

Graduated Payment Mortgages (GPM)

Answer 19

Mortgages that start off with a lower monthly payment, but increase over a period of time. Eventually this loan will increase to the fixed rate monthly payment. One example is a temporary buy down mortgage.

Question 20

Home Equity Line of Credit (HELOC)

Answer 20

Any open-end mortgage loan, which is usually a second mortgage that allows a borrower to obtain cash against the equity of a home up to a predetermined amount.

Question 21

Equity

Answer 21

An owner’s financial interest in a property. It is calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Question 22

Elderly

Answer 22

A natural person that is 62 or over.

Question 23

Line of Credit

Answer 23

An agreement by a financial institution to extend credit to a borrower for a specified amount and time period.

Question 24

Administrative Tasks

Answer 24

Any or all tasks performed in relation to the receipt, collection, and distribution of any information needed for the processing or underwriting of a loan.

Question 25

Bankruptcy

Answer 25

A federal law that states a person’s assets are turned over to a trustee and used to pay off outstanding debts. This usually occurs when someone owes more than they are able to repay.

Question 26

Interim Loan

Answer 26

A loan that is short in duration. It typically is a few months to a year. It also has higher than average interest rates, and a borrower only pays interest-only payments. A couple main examples of this loan type are bridge loans and construction loans.

Question 27

Home Equity Loan (HEL)

Answer 27

A closed-end mortgage loan backed by the fair market value of a property. Since home equity loans are often second mortgages, if the borrower defaults or does not pay the loan the lender still may have some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.

Question 28

Piggyback Loans

Answer 28

A type of second mortgage that closes simultaneously with the first mortgage. Commonly known as 80/20 loans, piggyback loans will exhaust all of the equity of the home by closing a first mortgage at 80% LTV and a second mortgage at 20% LTV.

Question 29

Private Mortgage Insurance (PMI)

Answer 29

Insurance purchased by a conventional loan borrower to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Private mortgage insurance is generally maintained until over twenty percent of the outstanding amount of the loan is paid for or for a set period of time.

Question 30

Primary Mortgage

Answer 30

A mortgage in a first lien position on the property thats secures the mortgage. A primary mortgage, also referred to as her first mortgage, has priority over all other liens or claims on a property in the event of a default.

Question 31

Conforming Loan

Answer 31

A loan that does not exceed Fannie Mae’s and Freddie Mac’s loan limits. Fannie and Freddie are considered conforming loans.

Question 32

Debt-to-Income Ratio

Answer 32

A comparison or ratio of housing and non-housing expenses to gross income. There are two different types of debt ratios: 1) front-end ratio, which includes only housing expenses and 2) back-end ratio, which includes all debt.

Question 33

“A” Paper (Prime Loan)

Answer 33

A loan offered to low risk borrowers who who a strong likelihood of repayment due to high credit scores, low loan-to-value, and available assets.

Question 34

Loan-to-Value (LTV) Ratio

Answer 34

A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased. The higher the LTV, the less cash a borrower is required to pay as down payment.

Question 35

Subordinate

Answer 35

Lower in rank, position, or priority.

Question 36

Second Mortgage

Answer 36

An additional mortgage on a property. In case of a default, the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate. Also known as :subordinate financing”.

Question 37

First Mortgage

Answer 37

The primary claim on a property that has first priority to any proceeds if the loan defaults and the property is sold through foreclosure.

Question 38

Interest-Only Loan

Answer 38

A type of mortgage loan that requires the borrower to only make interest payments. The principal of the loan remains unchanged unless the borrower willfully pays it. There are generally two types of interest-only loans, those with 5-year or 10-year interest-only periods. After the interest only period, the loan either amortizes through principal and interest payments, or requires a balloon payment of the principal.

Question 39

Secondary Market

Answer 39

Where investors buy and sell securities they already own. It is what most people typically think of as the “stock market”, through stocks are also sold on the primary market when they are first issued. The national exchanges, such as the NASDAQ, are secondary markets.