RE Finance Unit 8: Loan Terms & Note Payments

Question 1

Adjusted Book Basis

Answer 1

Purchase price of a property plus any capital improvements minus accrued depreciation, if any, to the date of the sale.

Question 2

Ammortization

Answer 2

The systematic repayment of a loan through periodic installments of principal and interest over the entire term of the loan agreement.

Question 3

Balloon Payment

Answer 3

The final payment of a partially amortized loan that is considerably larger than the required periodic payments.

Question 4

Blanket Mortgage

Answer 4

A mortgage secured by the pledging of more than one property as collateral.

Question 5

Blends

Answer 5

Interest rate on refinance loans; being an average of the old rate and the new rate.

Question 6

Boot

Answer 6

In an exchange, something of value given in addition to like-kind property (e.g., “this acre and cash to boot”).

Question 7

Bridge Loan

Answer 7

An equity loan made for a short time to raise money for a special purpose.

Question 8

Completion Bond

Answer 8

A third-party guarantee that the builder will complete construction.

Question 9

Condominium

Answer 9

Fee simple ownership of an apartment or a unit, generally in a multiunit building, plus an undivided interest in the common elements.

Question 10

Construction Mortgage

Answer 10

Open-end mortgage loan to finance construction of buildings on a property.

Question 11

Construction/Permanent Loan

Answer 11

Construction loan becomes permanent when building is completed.

Question 12

Convertible Loan

Answer 12

Borrower can change to a fixed rate any time during the life of an adjustable-rate loan.

Question 13

Cooperative

Answer 13

A residential multifamily building with the title in a trust or corporation that is owned and operated for the benefit of the persons living therein, each possessing a proprietary lease. All owners have joint liability for the mortgage on the property.

Question 14

Credit Loan

Answer 14

Mortgage issued strictly upon the financial strength of a borrower without great regard for collateral.

Question 15

Draws

Answer 15

A system of payments to a contractor under a construction loan.

Question 16

Exchange

Answer 16

A method for postponing income taxes on capital gains by trading like-kind property.

Question 17

Hard-Money Mortgage

Answer 17

Cash loan to a borrower.

Question 18

Installment Sale

Answer 18

Paying for property over time.

Question 19

Internal Revenue Code Section 1031

Answer 19

Establishes tax rules for the exchange of properties.

Question 20

Leasehold Mortgages

Answer 20

Mortgage loans secured by the tenant’s leasehold interest in a property.

Question 21

Lease-Option

Answer 21

A rental agreement including a tenant’s option to purchase the property.

Question 22

Manufactured Home Loans

Answer 22

Usually issued for single and double-wide mobile homes that are at least 540 square feet, located in approved mobile home parks, are on an approved foundation, and are taxed as real estate, rather than a vehicle.

Question 23

Mortgage Participation

Answer 23

Condominium, cooperative, and partnership loans.

Question 24

Open-End Mortgage

Answer 24

A loan providing for future advances.

Question 25

Option to Buy

Answer 25

A rental agreement including a tenant’s option to purchase the property.

Question 26

Package Mortgage

Answer 26

A loan that includes certain equipment and appliances located or installed on the premises in addition to the real property itself.

Question 27

Purchase-Money Mortgage

Answer 27

Loan given by a borrower to the seller as part of the purchase price of the property.

Question 28

Recognition Clause

Answer 28

Clause included in a blanket loan contract used to purchase a tract of land for subdivision and development; provides for the protection of the rights of buyers of small parcels in case of default on the part of the developer-promoter.

Question 29

Reverse Annuity Mortgage (RAM)

Answer 29

A system developed for the elderly property owner in which regular monthly payments can be received from a lender. When the total reaches a predesignated amount, the owner then begins repaying the loan or sells the property.

Question 30

Right of First Refusal

Answer 30

Unlike an option to buy or an option to renew a lease, which stipulates the terms in advance, this approach allows the owner to secure a market price bid that the occupant can be the first to accept or reject.

Question 31

Sale-Leaseback

Answer 31

Financing arrangement whereby an investor purchases real estate owned and used by a business corporation then leases the property back to the business; may include a buyback option.

Question 32

Security Agreements

Answer 32

Financing contract for personal property.

Question 33

Stop Date

Answer 33

Date on a term loan when the balloon payment is due.

Question 34

Term Loan

Answer 34

Non-amortized loan for a specified period, at the end of which the entire principal amount is due.

Question 35

Two-Step Mortgage

Answer 35

A hybrid loan between a fixed-rate and adjustable-rate loan; the lower rate remains in effect for seven years and is then automatically adjusted once for the balance of the loan period.

Question 36

Wraparound Encumbrance

Answer 36

Special form of junior financing instrument designed to encompass an already existing financing instrument.