Vocab-Loan Repayment/Loan Types & Clauses

Question 1

Equity:
The difference between the property value and the lien amounts

Answer 1

The difference between the property value and the lien amounts

Question 2

Promissory Note:
A personal promise from a borrower to repay the debt to the lender. The note serves as evidence of the debt and states the terms of the loan loan amount, interest rate, payment schedule.

• does NOT describe the collateral and is usually NOT recorded

Answer 2

• evidence of the debt
• states terms of the loan-loan amt, interest rate, payment schedule
• does NOT describe collateral & NOT recorded

Question 3

Promissory Note:
A personal promise from a borrower to repay the debt to the lender. The note serves as evidence of the debt and states the terms of the loan loan amount, interest rate, payment schedule.

Question 4

Finance Instruments:
* promissory note
* mortgage (Trust Deed)

Answer 4

• Promissory Note
• Mortgage/Trust Deed

Question 5

Mortgage aka Trust Deed

Answer 5

What is another name for mortgage?
Trust Deed

Question 6

The interest on a loan may be tax deductible T/F?

Answer 6

True: Financing motivation for borrowers
* tax advantages

Question 7

Trust Deed:

• Names the property as collateral for the debt.
• Includes provisions for the lender to foreclose if borrower defauls
• Includes legal description of the property
• recorded by the lender to establish priority of the lien

Answer 7

• names property as collateral
• includes provisions for lender in case borrower default
• includes legal description of the property
• recorded by the lender to establish priority of the lien

Question 8

Interest Rates:
1. Contract Rate/Note Rate
* aka Face Rate or Nominal Rate
2. Legal Rate
3. Usury

Question 9

Contract Rate/Note Rate:

The rate specified in the promissory note
* aka Face Rate or Nominal Rate

Answer 9

The rate specified in the promissory note
aka Note Rate, Face Rate, Nominal Rate

Question 10

Legal Rate:
AZ legal rate for judgement is 1% over the prime rate on the day the judgement is entered or 10% whichever is less

In Arizona, this rate would apply when no specific rate appears in an agreement. It is also the rate that would apply to judgements unless the court stipulated a different rate.

Answer 10

• applies when no specific rate in an agreement
• applies to judgements unless court stipulates a different rate
• 1% over the prime rate on date of judgement entered or 10% **whichever is less

Question 11

Usury:
Charging more than the rate set by the law is usury.
Arizona does NOT set a max on contract rates of interest on real estate loans

Answer 11

• charging more than rate set by law
• AZ doesn’t set a max on contract rates of interest on RE loans

Question 12

Three types of Interest Rates are?

Answer 12

1. Contract Rate/Note Rate/Face Rate/Nominal Rate
2. Legal Rate
3. Usury

Question 13

What is the legal rate (%) in AZ?

Answer 13

1% over the prime rate on date judgement was entered or 10%, whichever is less

Question 14

Payment Plans:
1. Amortized (Fullly Amortized
2. Balloon Payment
3. Budget Loan (PITI loan)
4. Straight Loan/Term Loan
5. Negative Amortization

Answer 14

1. Amortized/Fully Amortized (P&I)
2. Balloon Payment
3. Straight Loan/Term Loan
4. Negative Amortization
5. Budget Loan (PITI loan)

Question 15

Amortized or Fully Amortized:
Equal periodic payments of P&I

Answer 15

THINK:

Amortized/Fully Amortized = P&I payment plan

Question 16

Balloon Payement:

Last payment is larger than the monthly payments. Loan is partially amortized or interest only with the last payment being a balloon payment

Answer 16

THINK:
Balloon Payment=
* last payment larger than monthly payments
* partially amortized

Question 17

Budget Loan:
Payments over PITI.
**taxes and insurance go into an escrow account/impound acct/reserve acct
*Lender pays (on behalf of the borrower) taxes and insurance from the escrow account when due.

Answer 17

THINK:
* Budget Loan = PITI
* Lender pays Taxes & Insurance
* Taxes & Insurance go into an escrow account and paid by lender on behalf of borrower when due

Question 18

Interest is ALWAYS PAID IN ARREARS

Answer 18

INTEREST IS ALWAYS PAID IN???

Question 19

Straight Loan/Term Loan:
* usually Constuction Loans and HELOCs are commonly paid interest only
Borrower pays** interest only ** during the term of the loan with Principal due at maturity (balloon payment).

Answer 19

Borrower pays INTEREST ONLY
ex. Contruction Loans and HELOCs
* principal due at maturity of loan

Question 20

Negative Amortization:
Monthly payments are less than the interest due. examples:
* Home Equity Loans
* Graduated Payments loans

Question 21

STRAIGHT LOAN=INTEREST ONLY PAYMENTS

Answer 21

example: Contruction loans

Question 22

Promissory Note:
1. states who the lender & borrower are
2. The amount of the debt
3. The interest rate
4. The pattern of payments (monthly, quarterly etc)
Does NOT describe the collateral and is NOT recorded

Answer 22

• names lender and borrower
• the amount of the debt
• the interest rate
• pattern of payments
  THINK:
  ***Promissory note is a FINCANCE INSTRUMENT = borrower
• a loan is a Security Instrument = lender**

Question 23

Loan Types: 14
1. FHA loan
2. VA loan
3. Conventional loan
4. Purchase Money loan or Carryback Financing
5. Wraparound loan
6. Adjustable Rate Mortgage (ARM)
7. Blanket loan
8. Package loan
9. Open-End loan
10. Construction loan
11. Take-Out loan
12. Gap loan/Swing Loan/Brigle loan
13. Reverse Annuity (RAM)
14. Nonrecourse loan

Question 24

FHA loan:
* Insured by Federal Housing Administration
* Regulated by HUD
* FHA does NOT lend money
* loan is paid PITI and do NOT have prepayment penalties

Answer 24

Think HUD loan
* FHA or HUD are NOT lenders
* FHA approved lender originates the loan
* Borrower pays MIP and UPMIP:

1. Mortgage Insurance Premium-borrower pays monthly
2. Upfront Mortgage Insurance Premium-borrower pays up front at close of escrow

Question 25

VA loan: * VA guarantees the lender against loss on loans to eligible veterans and spouses of veterans * Loan originated by VA approved lender * VA funding fee NOT MIP * NO DOWN PAYMENT/ 100% financing * VA loans paid PITI with no prepayment penalties * Assumable

Answer 25

* No down payment-100% LTV * Paid PITI * Loan for owner occipied 1-4 family dwellings * VA appraisal required (Cert of Reasonalbe Value or CRV * Certificate of Eligibility req'd

Question 26

Conventional loan: made solely based on the value of the property and the borrower's ability to repay. No government insurance or guarantee.

Answer 26

Types of Conventional Loans: 1. Uninsured Conv loans *require a min 20% down payment (80% LTV ratio) *down payment maybe borrowed 2. Insured Conv loans which the lender is insured against loss in the event of foreclosure *PMI- Lenders require PMI on the loan amount greater than 80% LTV ratio 3. a)Conforming loans: meet all Fannie Mae and Freddie Mac underwriting guidelines (b)Nonconforming loans: Jumbo Loans * Do not meet Fannie Mae and Freddie Mac guidelines *Exceeds the max dollar limits set by Fannie Mae or Freddie Mac. Jumbo loans usually have less favorable terms 4. Subprime Loan: * Offered at a higher interest rate and less favorable terms to borrowers who are less qualified than "prime borrowers" 5. Private Investor/Hard Money Loan: *loans placed at high interest rates for hard to finance borrowers or properties

Question 27

Loan Clauses: * Acceleration Clause *Alienation Clause (Due on Sale Clause/Non-Assumption Clause) *Prepayment Clause (Yield Maintenance Clause) *Defeasance Clause *Release Clause *Subordination Clause *Non-Disturbance Clause *Carve-Out Clause (Personal Guarantee)

Answer 27

* Acceleration: Allows the lender to declare loan balance immediately due and payable if borrower defaults * Alienation (Due on Sale/Non-Assumption): Allows lender to declare entire debt due and payable if the property is sold. May not be assumed. **alienate means to sell, transfer or assign. * Prepayment (Yield Maintenance): Lender can charge a prepayment penalty if loan is paid off early. Used by lenders o maintain their yield on a loan * Defeasance: States mortgage is null and void when the borrower pays off the note **defeats the loan**