Unit 5 - Mortgages and Financial Calculations Flashcards
What are the three types of mortgages?
- Legal
This is when the mortgagee (lender) has legal title, but the mortgagor has the right to deal with the land and premises. This is a common first mortgage - Equitable
Because the first mortgage has the title already resting with mortgagee, subsequent mortgages rely on their equity in the property and this is what these are based on - Chattel
Chattel mortages are for what would be seen as personal property. So for manufactured homes, cars, furniture, etc.
Who is mortgagor and mortgagee?
Mortgagor: Borrower
Mortgagee: Lender
What is a covenant in a mortgage?
A covenant are promises from the mortgagor such as that they will pay to principal, interest, keep property in good repair, insure it, etc.
What are the two common legal remedies to default?
What is a non-legal remedy to default?
Foreclosure and judicial sale are two common legal remedies to defaulting.
Non-legal remedies are used by lenders who want to resolve the default through direct negotiations and therefore avoid costly legal disputes.
What are three common rights that the mortgagor has?
What are two that the mortgagee has?
Mortgagor rights:
- Right to quiet possession
- Right to redeem the property
- Right to discharge the mortgage
Mortgagee rights
- Right to assign
- Right to be paid
What is a mortgage Deed?
A Mortgage Deed is a legal document entered by the mortgagee and mortgagor and follow a similar format to the following:
- Parties (legal names)
- Consideration and terms of repayment
- Arrears (calculating any arrears interest)
- Special Privileges (prepayment, renewal, etc)
- Covenant
- Monthly tax payments
- Acceleration
- Judgment
- Signatures
What is the secondary mortgage market?
The Secondary market invovles buying and selling mortgages and has grown significantly.
What is “Equity of Redemption?”
Equity of redemption is the right of the mortgagor to reclaim clear title to the property after it has been fully repayed
What is a foreclosure and judicial sale?
Should default occur, this is a case of the court selling your house to and the proceeds being applied against the mortgage debt
What are three common mortgage privileges?
- Prepayment
Can pay off chunks of principal at a time - Renewal
- Portability
Can transfer mortgage to new property upon selling the old
What are three common mortgage privileges?
- Prepayment
Can pay off chunks of principal at a time - Renewal
- Portability
Can transfer mortgage to new property upon selling the old
What is the difference between a closed and open mortgage?
An open mortgage can be prepaid without penalty, whereas closed can not be prepaid.
When will clients need a high ratio mortgage?
They will need a high ratio mortgage when they do not have a 20% down payment, and therefore will need mortgage insurance
There are so many ways a prepayment penalty could work for breaking a closed mortgage. Usually it’s just 3 month’s interest on the outstanding balance of the mortgage. Could also be an interest rate differential. At the end of the day, what’s the best advice for clients?
The best advice for clients looking to break mortgage is to contact their lender for an exact penalty quote.
What are the 7 processing steps leading to a mortgage approval?
- Pre-approval attained (optional)
- Mortgage application prepared
- Lender review application
- Commitment letter is prepared and forwarded to applicant
- Applicant reviews and signs commitment letter
- Upon receipt of commitment letter, the lender’s purchaser’s lawyer prepares the mortgage documents for signature
- Mortgage transaction is completed with issuing of closing funds