real 1820 MIdterm 2 week 6

Question 1

Down payment:

Answer 1

Is the amount of money you put towards the purchase of a home. The minimum amount for your down payment depends on the purchase price of your home.

Question 2

Mortgage Loan Insurance (MIL):

Answer 2

If your down payment is less than 20% of the price of your home, you must purchase mortgage loan insurance. Insurance protects the lender in case you can’t make your mortgage payments.

• Mortgage Loan Insurance is not available if the purchase price of the home is equal to or over $1.5M

Question 3

Amortization period:

Answer 3

length of time it takes to pay off a loan or mortgage in full. Its based on the interest rate and payment schedule of the loan,

Question 4

Mortgage Term:

Answer 4

length of time a mortgage contract is in effect, and it can range from a few months to 10 years.

Question 5

Lending Value:

Answer 5

Lender’s (ie Bank’s) appraised value of the property for mortgage
purposes. Sometimes the lending value is the purchase price, but not always!

Question 6

Loan To Value Ratio = mortgage loan/ lending value

Answer 6

A high ratio mortgage isa mortgage loan higher than 80% of the lending value of the property. A conventional mortgage is a mortgage loan up to a maximum of 80% of the lending value of the property.

Question 7

open mortgage

Answer 7

the principle can be paid off at anytime without penalty. An open mortgage carries a higher mortgage rate than a closed one

Question 8

Closed mortgage

Answer 8

None of the mortgage is pre payable

Question 9

Interest Rate

Answer 9

The interest is the fee you pay to the lender for borrowing the money.

Question 10

Fixed Interest Rate:

Answer 10

Interest rate stays the same for the entire term. Fixed rate stays the same the entire term. Fixed rates are usually higher than the variable. preferred when rates are low or expected to rise

Question 11

Variable Interest rate:

Answer 11

can increase or decrease during a term. Typically the rate is lower than a fixed rate. You can keep your payments the same for the term or have the option for an adjustable payment with a variable rate

Question 12

Fixed Interest rate and Variable interest rate formula

Answer 12

Fixed Rate = Bonds yields + a margin
Variable Rate = prime rate + or - a small percent

Question 13

Effective Annual Interest Rate (EAR):

Answer 13

is the rate of interest actually earned on an investment or paid on a loan as a result of compounding the interest over a given period of time

Question 14

Gross Debt Service Ratio (GDS)

Answer 14

The percentage of gross income that is required to cover payments/costs associated with housing. Payments include the mortgage payment, property taxes, heating and condo fees

Question 15

GDS Formula

Answer 15

= total monthly house payments/ gross monthly income (x100%)

lenders rule; No more than 39% to qualify for mortgage

Question 16

Total Debt Service Ratio (TDS)

Answer 16

the percentage of gross income required to cover payments/costs associated with housing plus all other debt such as car loans, education loans, credit cards etc.

Question 17

TDS Formula;

Answer 17

= Total monthly house payments + other debt/ Gross monthly income

• Lenders Rule: No more than 44% to qualify for mortgage