Fil 260-Topic 11

Front 1

What are some ways in which mortgage loan payments can be arranged without violating these Laws of Financial Dynamics? (Repayment method)

Back 1

1. Negative amortization
2. No amortization- straight term loan
3. Partial amortization
4. Full amortization
5. More than full amortization
6. Adjustable rate mortgage
7. Hybrid Mortgage loan
8. Shared appreciation mortgage
9. Reverse Annuity mortgage
10. Buydown
11. Price level adjusted mortgage

Front 2

What is graduated payment mortgage (GPM)?

Back 2

a type of negative amortization loan that sometimes might be well-suited to younger people with little money but much income growth potential

Front 3

What is negative amortization?

Back 3

initial payments are so low that they do not even cover interest owed for the respective time periods

Front 4

Fixed Interest rate mortgage loan (FRM) can be seen as being good for:

Back 4

1. Borrowers- cuz of cash flow benefits (ability to spread payments over a long period)
2. Lenders- cuz the amortization feature reduced the likelihood that the borrower would default

Front 5

Fixed Interest rate mortgage loan(FRM) can be bad for:

Back 5

1. borrowers- cuz tilt problem, rising incomes over time cause early-year payments to be very expensive in real dollar terms, but later payments to be more inexpensive in real dollar tersm
2. Lenders- cuz interest rate risk, especially in light of the short-term nature of traditional lenders' deposit base

Front 6

What is a Hybrid mortgage loan?

Back 6

two-step loan, more recent offshoot of the old rollover, or Canadian rollover, or renegotiable rate loan
**sometimes called a reset mortgage loan- basically just an ARM with a longer wait until the interest rate first adjusts

Front 7

Home-owning borrower can:

Back 7

deduct mortgage loan interest from adjusted gross income in computing federal income tax, but can deduct only the interest actually paid. A loan with a lower interest rate may not be as cheap as it seems.
**economically unwise to refinance to a lower interest rate if the new loan's origination cost is high, the interest rate reduction is modest, or the borrower doesn't expect to remain in the house for a long period.