Unit 13 Flashcards
COMMON TYPES OF MORTGAGES
Amortized Mortgage
A fixed-rate amortized mortgage consists of a series of fixed equal monthly payments over the loan term. Typical mortgage loan terms are 15-year and 30-year terms. At the end of the loan term, the loan is completely paid off. For example, a loan with a 30-year term will be paid in full and exactly 30 years. ( 360 monthly payments). The monthly payments are constant (same monthly payment) each month for the loan term. Fixed-rate amortized mortgages are sometimes referred to as level-payment plan mortgages because the borrower pays the same mortgage payments each month.
Adjustable-Rate Mortgage
Margin
The margin (or spread) is the percentage added to the index. The margin represents the lenders’ cost of doing business plus profit. The margin percentage remains constant over the life of the loan.
Truth in Lending Act (TILA)
1) Triggering Terms
Triggering terms. TILA is also concerned that consumers may be misled by being given truthful but inadequate information in advertising. While it does not require creditors to advertise credit terms, it does provide that if they advertise certain credit terms, called triggering terms, they must include additional disclosures. Trigger terms include the
1) amount of percentage of any down payment,
2) number of payments,
3) period (term) of repayment,
4) amount of any repayment, and 5) amount of any finance charge.
Advertisements containing any of the triggering terms must also disclose the following:
1) Amount or percentage of down payment
2) Terms of repayment
3) Annual percentage rate, using that term, and if the rate may be increased in the future, that fact must also be disclosed.
Truth in Lending Act
2) Right of Rescission
Right of Rescission. Consumers who are financing residential mortgage loans have the right of rescission, which is a cooling off period of three business days, during which they may cancel the loan without losing any money. The right of rescission applies to most consumer loans but does not apply to loans to purchase or construct a home. The three-business day right of rescission applies to:
1) Home equity lines of credit,
2) Second mortgages and
3) Refinance loans.
Real Estate Settlement Procedures Act (RESPA)
*Purchase of title insurance.
Purchase of Title Insurance.
RESPA prohibits a seller from requiring the homebuyer to use a particular title insurance company as a condition of a sale. Generally, the lender will require title insurance. The borrower can shop for and choose a company. However, if the seller is paying for the owner’s title insurance policy, for law does not prohibit the seller from choosing the title company.
