Section 13 Vocabulary Flashcards
Adjustable Rate Mortgage (ARG)
Adjustable rate allows for the interest charged to fluctuate depending upon the terms outlined in the loan. It is also referred to as an ARM.
Balloon Payment
The loan balance that is unpaid at the end of the loan has to be made in one large payment.
Biweekly Mortgage
With a biweekly mortgage the payments are based on a regular amortization schedule but divided in half and set up to pay every 2 weeks instead of once a month. By using the biweekly payment strategy, the mortgage is paid off in 22.6 years instead of 30.
Conforming Loans
Loans that follow the standards expected in order to be sold in the secondary market are said to be conforming loans. They conform to guidelines established Fannie Mae or Freddie Mac.
Disintermediation
Disintermediation occurs when depositors take their money out of financial institutions because they can earn more money in other investments.
Home Equity Loan
A home equity loan is when you borrow money using the equity in your home as collateral. That is, you use the portion of your home that’s paid for to back the loan.
Index
Lenders base interest rates on a variety of indexes. Normally the index chosen is outside of the lender’s control. The most common indexes are the one-year constant maturity treasury security, the cost of funds index, or the London Interbank Offered Rate.
Intermediation
Intermediation is the normal flow of money into financial institutions from the public in the form of deposits. These deposits are combined and accessed to loan out to earn income for the institution.
Level Payment Plan
Amortizing a loan over a specified period so that equal payments can be made each payment period.
Lifetime Cap
Limits the amount that the rate increase in total over the life of the loan.
Margin
The amount the lender adds to the index in order to make the loan profitable.
MIP
Up-front Mortgage Insurance Premium (UFMIP) is charged to borrowers at closing as a closing fee. Goes into a fund in case the borrower defaults.
Mortgage Broker
Mortgage brokers conduct Loan Origination Activities by acting as an intermediary who brokers mortgage loans on behalf of individuals or businesses. Mortgage brokers (mortgage brokerages) do not lend their own money or service loans. Their role is to find a bank or a direct lender for individual seeking loans.
Mortgage Fraud
Mortgage fraud occurs when someone deliberately falsifies information to obtain mortgage financing that would not have been granted otherwise.
Mortgage Loan Origination
The actual process of working with a buyer to process loan applications, negotiate the terms and conditions of a loan between the borrower and the lender.
Negative Amortization
Negative amortization arises when the payment made by the borrower is less than the interest due and the difference is added to the loan balance. The mortgage balance increases.
Non-Conforming Loan
A non-conforming loan is a loan that doesn’t conform to guidelines established Fannie Mae or Freddie Mac.
Package Mortgage
A package mortgage is a mortgage agreement that provides home financing including real property, property improvements and movable equipment. In other words, you get to finance a home along with the furniture and other personal property such as tables and chairs.
Partially Amortized/Balloon Mortgage
Some mortgages are amortized over a period of several years, but not paid off in that time. At a predetermined time the balance of the loan becomes due in its’ entirety.
Payment Cap
The payment caps set a limit of how much the payment can actually be increased in between terms. The purpose is to protect the borrower from payments being increased to a point that the borrower cannot afford to make the payment.
Periodic Cap
A periodic cap limits the amount of increase that a loan may increase to during one adjustment period (usually a year).
Purchase Money Mortgage
A purchase money mortgage, also called seller financing or owner financing, is a home-financing technique in which the buyer borrows from the seller instead of, or in addition to, a bank.
Reverse Annuity Mortgage
Also called a Reverse Mortgage or a Home Equity Conversion Mortgage (HECM), is a mortgage for homeowners 62 years old and older who have a significant amount of equity built up in their house. They can borrow against that equity — taking the cash in a lump sum, as a monthly income stream or a line of credit they can tap when needed.
Teaser Rate
It is an initial rate is lower than the fully indexed rate. The lender charges a higher rate after the initial discounted rate period passes. These types of loans are often combined with larger initial loan fees. The initial low rate and subsequently lower payment makes the loan appear to be more attractive.
UFMIP
Up-front Mortgage insurance premium.
