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24 Cards in this Set
- Front
- Back
What are the Two Elements of a Mortgage Loan
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note and a mortgage
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Exact terms and conditions of the (loan) financial obligation
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note
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Pledges the property as security for the note
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mortgage
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What two contracts are always involved in a mortgage loan?
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a borrower always conveys a note and a mortgage to the lender
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are common in commercial real estate loans and are the choice of many home borrowers, • They are used in virtually all-home equity credit line mortgage loans.
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adjustable rates
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the index, margin, and method of computing the index, adjustment period, date of change in the interest rate, and determination of any “caps” or limits on interest rate change
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components that must be defined in a notes
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is the market-determined interest rates that is the “moving part” in the adjustable interest rate. Cannot be influenced by the borrower or lender
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index rate
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for loans on income producing property. Generally home mortgage lenders must notify borrowers of interest rate changes at least 30 days in advance
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common index known as the LIBOR Rate
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is determined by the individual lender and can vary with competitive conditions and with the risk of the loan. It normally is constant throughout the life of the loan.
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the margin
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• 200 to 300 basis points (bp)
• Average is extremely stable at 277 - 278 bp |
margin
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Date that interest rate changes each time
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change date
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what are the two kinds of limits, known as caps, that commonly restrict the change in ARM adjustable rates.
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periodic caps, and overall caps
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Limit on payment changes rather than interest rate changes
Can result in negative amortization: Unpaid interest added to the balance |
payment caps
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• Most ARM home loans have been marketed with a Initial, temporarily reduced interest rate know as
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teaser rate
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it may pay down partially over a certain number of years, but may require an additional payment of principal with the last scheduled payment.
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• Partially amortizing
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that determines the payment, and the schedule of interest, and principal payments, just like a fully amortized loan.
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• Term for amortization
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it is shorter, determines when the entire remaining balance on the loan must be paid in full. Often called the balloon loan
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term of maturity
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has an amortization term that determines interest and principal payments as if it were a fully amortized loan and a shorter term for maturity at which the remaining loan balance must be paid in full. they are the dominant form of mortgage loan for income-producing property.
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balloon loan
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made to homeowners who do not qualify for standard home loans, can have very costly prepayment penalties that “lock in” the borrower to a very high interest.
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subprime loans
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a borrower wishing to prepay must pay the balance, plus a lump sum representing the value of the interest income that will be lost by the lender due to prepayment.
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• Yield maintenance prepayment penalty
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where a borrower wishing to prepay must provide the lender with some combination of US Treasury securities that replaces the cash flows of the loan being paid off.
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• Defeasance prepayment penalties
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if the borrowers fail to meet the terms of the note, they are in a condition of
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default
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relieve the borrower of personal liability, they do not release the property as collateral for the loan.
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• Non-recourse loan
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is negotiated in the note that releases the borrower from liability for fulfillment of the contract
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• Exculpatory clause
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