Section 13 Vocabulary

Question 1

Adjustable Rate Mortgage (ARG)

Answer 1

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.

Question 2

Balloon Payment

Answer 2

The loan balance that is unpaid at the end of the loan has to be made in one large payment.

Question 3

Biweekly Mortgage

Answer 3

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.

Question 4

Conforming Loans

Answer 4

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.

Question 5

Disintermediation

Answer 5

Disintermediation occurs when depositors take their money out of financial institutions because they can earn more money in other investments.

Question 6

Home Equity Loan

Answer 6

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.

Question 7

Index

Answer 7

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.

Question 8

Intermediation

Answer 8

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.

Question 9

Level Payment Plan

Answer 9

Amortizing a loan over a specified period so that equal payments can be made each payment period.

Question 10

Lifetime Cap

Answer 10

Limits the amount that the rate increase in total over the life of the loan.

Question 11

Margin

Answer 11

The amount the lender adds to the index in order to make the loan profitable.

Question 12

MIP

Answer 12

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.

Question 13

Mortgage Broker

Answer 13

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.

Question 14

Mortgage Fraud

Answer 14

Mortgage fraud occurs when someone deliberately falsifies information to obtain mortgage financing that would not have been granted otherwise.

Question 15

Mortgage Loan Origination

Answer 15

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.

Question 16

Negative Amortization

Answer 16

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.

Question 17

Non-Conforming Loan

Answer 17

A non-conforming loan is a loan that doesn’t conform to guidelines established Fannie Mae or Freddie Mac.

Question 18

Package Mortgage

Answer 18

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.

Question 19

Partially Amortized/Balloon Mortgage

Answer 19

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.

Question 20

Payment Cap

Answer 20

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.

Question 21

Periodic Cap

Answer 21

A periodic cap limits the amount of increase that a loan may increase to during one adjustment period (usually a year).

Question 22

Purchase Money Mortgage

Answer 22

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.

Question 23

Reverse Annuity Mortgage

Answer 23

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.

Question 24

Teaser Rate

Answer 24

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.

Question 25

UFMIP

Answer 25

Up-front Mortgage insurance premium.