Unit 14 Financing Flashcards
Define acceleration clause
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other obligation. 245
Define adjustable-rate mortgage (ARM)
A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index. 249
Define alienation clause
The clause in a mortgage or deed of trust stating that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. In effect, this clause prevents the borrower from assigning the debt without the lender’s approval. 247
Define amortized loan
A loan in which the principal, as well as the interest, is payable in monthly or other periodic installments over the term of the loan. 248
Define beneficiary
(1) The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. (2) A lender in a deed of trust loan transaction. 244
Define Comprehensive Loss Underwriting Exchange (CLUE)
A database of consumer claims history that allows insurance companies to access prior claims information in the underwriting and rating process. 257
Define debt to income (DTI)
Information about an applicant’s gross income and total debt that lenders generally look at as a percentage to determine qualification for a loan. 238
Define defeasance clause
A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan. 246
Define deficiency judgment
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full. In some states, a deficiency judgment cannot be sought when the mortgage debt was used to purchase, and is secured by, the borrower’s principal residence. 254
Define discount point
A unit of measurement used for various loan charges; one point equals 1% of the amount of the loan. 241
Define equity
The interest or value that an owner has in property over and above any indebtedness. 238
Define growing-equity mortgage
A loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principal balance outstanding and thus shorten the overall term of the loan. 250
Define homeowners insurance
Insurance that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks. 256
Define index
An objective economic indicator to which the interest rate for an adjustable-rate mortgage is tied. 249
Define interest
A charge made by a lender for the use of money. 232
Define interest-only loan
A loan that only requires the payment of interest for a stated period of time with the principal due at the end of the term. 248
Define lien theory
Principle in which the mortgagor retains both legal and equitable title to property that serves as security for a debt. The mortgagee has a lien on the property, but the mortgage is nothing more than collateral for the loan. 243
Define loan origination fee
A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount. 241
Define loan-to-value ratio (LTV)
The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral. 270
Define margin
A premium added to the index rate representing the lender’s cost of doing business. 249
Define mortgage
A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien. 3
Define negotiable instrument
A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee’s right to payment. 239
Define PITI
The basic costs of owning a home—mortgage principal and interest, real estate taxes, and hazard insurance. 237
Define prepayment penalty
A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost. 242
Define promissory note
A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party). 239
Define release deed
A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid. 246
Define reverse mortgage
A loan by which a homeowner receives a lump sum, monthly payments, or a line of credit based on the homeowner’s equity in the property secured by the mortgage. The loan must be repaid at a prearranged date, upon the death of the owner, or upon the sale of the property. 252
Define satisfaction of mortgage
A document acknowledging the payment of a mortgage debt. 243
Define short sale
Sale of property in which the sales price is less than the remaining indebtedness. 108
Define straight loan
A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment. 248
Define subject to
Buyer takes title of property and makes payments on the existing loan but is not personally obligated to pay the debt in full. Original seller might continue to be liable for debt. 247, 260
Define trustor
A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler. 73
Define usury
Charging interest at a higher rate than the maximum rate established by state law. 241
Define redemption
The right of a defaulted property owner to recover property by curing the default. 227
