Unit 13 - Types of Mortgages and Sources of Financing Flashcards
Adjustable-rate mortgage
A financing technique in which the lender can raise or lower the interest rate according to set index.
Amortized mortgage
A loan characterized by payment of a debt by regular installment payments.
Annual percentage rate (APR)
Total yearly cost credit
Balloon payment
A single, large payment made at maturity of a partially amortized mortgage
Biweekly mortgage
A mortgage loan amortized the same way as other loans with monthly payments, except that the borrower makes a payment every two weeks.
Closing Disclosure
A form that must be provided to the borrower 3 days prior to closing; Replaced the settlement statement HUD-1
Conforming loan
A standardized conventional loan written on uniform documents that meets the purchase requirements of Fannie Mae or Freddie Mac
Conventional loan
A real estate loan that is neither FHA- insured nor VA guaranteed
Demand Deposit
Checking accounts; payable on demand by the holder
Discount Rate
The amount of interest the Federal Reserve charges to lend money to its eligible banks
Disintermediation
A disengagement process when depositors withdraw money from savings for direct investment in stocks, money market funds and other securities.
Entitlement
The portion of a VA-guaranteed loans that protects the lender if the borrower defaults.
Fannie Mae
An institution in the secondary mortgage market that buys and sells mortgages.
Freddie Mac
Formally called the Federal Home Loan Mortgage Corporation. A secondary mortgage market institution that buys and sells conventional, FHA and VA loans
Ginnie Mae
A federal agency that is part of the Department of Housing and Urban Development. Ginnie Mae plays an important role in achieving the HUD’s goal of providing low-cost mortgage credit to traditionally underserved sectors of the housing market.
Home Equity Loan
A mortgage secured by a personal residence. It provides a line of credit available for draws when needed by the homeowner. It is sometimes used as a home improvement loan.
Index
The variable component that is added to the margin to calculate the interest rate in an adjustable rate mortgage.
Intermediation
The process whereby financial middlemen consolidate many small savings accounts belonging to individual depositors and invest those funds in large, diversified projects
Level-payment plan
A method of amortizing a mortgage whereby the borrower pays the same amount each month
Lifetime cap
Limits the total amount the interest rate may increase over the live of an adjustable rate mortgage loan.
Loan Estimate
A disclosure form with good-faith estimates of credit costs and transactions terms that must be given to the borrower no later than the third business day after receiving the loan application.
Margin
The fixed component that is added to the index to calculate the interest rate in an adjustable rate mortgage.
Monetary Policy
The actions undertaken by the Fed to influence the availability and cost of money and credit
Mortgage broker
A business entity that conducts loan originator activities. Mortgage brokers can employ mortgage loan originators. Mortgage brokers do not make loans or service loans - they arrange loans
Mortgage Insurance Premium
Fee paid by FHA borrowers to obtain a loan (upfront and annual).
Mortgage Lender
A business entity that originates, sells and services mortgage loans. Mortgage lenders are not depository institutions. They originate loans and then package the loans together and sell the entire package.
Mortgage Loan Originator
One who finds a lender for a potential borrower, and vice versa.
Negative Amortization
A financing arrangement whereby monthly are less than required to pay both interest and principal. The unpaid amount is added to the loan balance
Nonconforming loan
A residential mortgage loan that exceeds the loan amount acceptable for sale to Fannie Mae.
Open Market Operations
Purchase and sale of US Treasury and federal agency securities.
Package Mortgage
A loan covering both real and personal property.
Partially Amortized Mortgage
The buyer makes regular payments smaller than what is required to completely pay off the loan (payments do not fully amortize the loan) resulting in a larger balloon payment to pay off the remaining amount due.
Payment Cap
Limits the amount the monthly payments of an adjustable-rate loan can increase during any adjustment.
Periodic Cap
Limit the amount the interest rate of an adjustable-rate loan may increase at any one time (usually a year).
Primary Mortgage Market
A source for the purchase of a mortgage loan by a borrower
Principal
Amount of money borrowed in a mortgage loan
Purchase Money Mortgage (PMM)
Any new mortgage taken as part of the purchase price of real property by the seller.
Reserve Requirements
The amount of funds that an institution must hole in a reverse against deposit liabilities
Reverse Mortgage
A source for the purchase and sale existing mortgages.
Secondary Mortgage Market
A booklet containing consumer information regarding closing costs the borrower may incur at closing. RESPA require lender to give the booklet to loan applicants
Special Information Booklet
A below-market interest rate usually offered for the first year on some adjustable-rate mortgages.
Teaser Rate
A below-market interest rate usually offered for the first year on some adjustable-rate mortgages.
Triggering terms
The Truth in Lending Act requires creditors to disclose certain information if certain credit terms, called triggering terms, are included in the advertisement. (E.g. %age of down payment, # of payments, term of repayment, amount of any payment, and finance charges.)
Truth in Lending Act
TILA is a body of federal law that is part of the Consumer Credit Protection Act and implemented by the Federal Reserve’s Regulation Z. The main purpose of the act is to ensure that borrowers and customers of consumer credit are given meaningful information with respect to the cost of credit so consumers can compare the various credit terms available.
Up-front Mortgage Insurance Premium (UFMIP)
A one time mortgage insurance premium on FHA mortgage loans that is paid at closing
