Unit 12 Flashcards
LOAN INSTRUMENTS
MORTGAGE
Parties to a Mortgage
There are 2 parties to a mortgage: 1) The mortgagor, or borrower (debtor), and 2) the mortgagee or lender (creditor). The mortgagor owns the property, and the mortgagee owns the mortgage.
The mortgage is regarded as an investment or chattel (personal property) by the mortgagee, and like other such investments, it may be sold to another investor if desired.
To remember: Mortgagor VS Mortgagee.
Mortgagor is the borrower. They both have 2 O’s in their spelling.
Mortgagee is the lender. They both have 2 E’s in their spelling.
LOAN INSTRUMENTS
Promisery Note
The promisory note provides the financial details of the loan’s repayment:
1) Amount of debt.
2) Interest rate.
3) Repayment method.
4) Term or time period to repay.
5) Borrowers failure to pay as required.
Amount of Debt
In return for the loan, the borrower promises to pay the lender, the amount of the loan, called the principal, plus interest.
Interest Rate.
Interest is charged on the unplayed principle until the full amount of the principle has been repaid. Interest rates are stated as yearly (annual) rates.
Repayment Method.
The amount of the monthly payment and the due date are indicated. The monthly payment consists of principle and interest (also called debt service). The payment is applied to interest before principle.
Maturity Date:
Term or Time Period to Repay
The date that the loan ends (has been fully repaid) is called the maturity date.
Borrower’s failure to pay as required.
The borrower agrees to pay a late charge if the monthly payments are paid late. The lender also warns the borrower that if the payments are not paid in full each month on the due date, then the borrower will be in default. If the borrower defaults ( violates the term of the mortgage), the lender can CALL the loan (demand repayment of the entire loan before the end of the term).
MORTGAGE LAW.
Lien Theory
Most states, including Florida, are lien theory states. The borrower retains the title to the property. The lender is protected with a lien on the real property to secure the payment of the mortgage debt. If the borrower defaults on the mortgage debt, the lender will foreclose to recover the money owed.
LOAN-TO-VALUE RATIO CALCULATION
The loan-to-value ratio (LTV) is calculated by dividing the mortgage loan amount by the properties sale price or appraised value.
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ASSIGNMENT OF MORTGAGE
When ownership of a mortgage is transferred from one company or individual to another, it is called an ASSIGNMENT.
