Unit 7: Methods of Principal & Interest Payment Flashcards
What is a term (straight) loan?
A loan in which no principal is paid during the loan, only interest, and the entire principal is paid back at the end of the term (6 months-2 years)
What is a partially amortized (balloon) loan?
A loan with equal payments of principal and interest but at the end of the term (1 - 5 years) there is a lump sum balloon payment
What is a fully amortized loan?
A loan with equal payments of principal and interest but there is no large balloon sum at the end (15 - 30 years). The loan balance is zero.
What is another name for a fully amortized loan?
Fixed rate
What is an adjustable-rate mortgage loan?
A loan in which the interest rate is periodically increased or decreased based on a set economic index or indicator..
How is the interest rate of a adjustable-rate mortgage loan calculated?
index + margin = new rate
Who should not get an adjustable-rate mortgage?
Anyone on a set income, such as a retiree.
What is a budget mortgage?
A loan that has the monthly payments including debt service plus tax and insurance escrow.
What is another name for a budget mortgage?
PITI loan
Principal
Interest
Taxes
Insurance
What kind of mortgage would be best for a furnished property?
Package mortgage
Which loan type is used by developers?
Blanket mortgage
What is a blanket mortgage?
A mortgage that covers more than one parcel of property.
What clause is commonly part of a blanket mortgage?
Partial release clause that allows individual properties to be released from the lien as the balance is paid down.
What is a construction mortgage?
A loan to finance the cost of constructing a building, usually providing that the loan funds will be advanced in installments as the work progresses.
What is another name for a construction mortgage?
Interim loan
Who can get a reverse mortgage?
Homeowners that are 62 years or older and has considerable home equity.
What is a reverse mortgage?
Homeowners can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment or line of credit.
Why would a homeowner take out a home equity loan?
Because they are wanting to do home improvements.
What is a home equity loan?
Owners borrow against the equity in their home. The borrowed full amount is calculated based on the difference between the home’s current market value and the homeowner’s mortgage balance due.
According to the Truth in Lending Act, how many days do homeowners have the right to rescission?
3 days
What is a home equity line of credit (HELOC)?
It works like a credit card and allows the borrower to obtain further advances at a later date.
