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### 25 Cards in this Set

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 Interest concepts InterestSimple interestCompound interestMortgage interest Simple interest At the end of a loan, the loan amount plus the accurued interest is paid back in one lump sum to clear the debt Compound interest When simple interest accured over the initial term of the loan is added to the principal, after which time interest is charged on the total of both. Aka charging interest on the interest Mortgage interest Interest owing = principal x rate of interest x time borrowingI = P x R x T When to use simple interest in mortgage deal Bridge/interim financing deal Blending mortgage rates or interest amounts for an assumed deal or second mortgage deal Compound interest formula A = P (1 + r)^nA = amount owed after n years, including interestorrowedR = annual rate of interest expressed as a decimalP = principal. Initial amount borrowedR = annual rate of interest expressed as a decimaln = term (years or months) for which the amount is borrowed Fix rate mortgage compounded .. Semi annually Variable rate, interest is compounded ... Monthly or semi annually Loan variables Interest rate TermAmortization periodRepayment schedulePrepayment optionsPayout penaltiesDown payment Prepayment options Lump sum paymentsIncreased or double up payments Anniversary payments Pat downs at renewal Lump sum payments Allowed to make payments up to a specific amount one or more times a year ex 15% Increased or double up payments Allow borrowers to increase their payments up to 100% (doubling original payment), one or more times a year, up to a max Anniversary payments Similar to lump sum, but only on anniversary date of mortgage agreement (once per year) Pay downs at renewal Allow borrowers to pay a lump sum directly against principle at the time of term renewal Payout penalties Three months interest Interest rate differential (IRD) Claw back penalty Lender gives you a chunk of cash from your mortgage. If the borrower decides to break the term early that cash will have to be repaid The basic mortgage broker transactions Purchase RenewSwitch/transferRefinanceBorrow equity Pay off Interim financing Short term loan.Purpose of bridging the gap between the closing of a sale and the closing of a purchase To protect against unforeseen events or delays in processing paperwork Benefits of second mortgage Sometimes more economical than refinancing in terms of interest costThe non interest costs to arrange a second mortgage are less than those to arrange a first mortgage If the buyer wants second mortgage, The seller avoids the cost of discharging the existing mortgage early. Seller might pass the savings to the buyer by reducing the purchase price Reasons for refinancing Falling interest rates, Rising interest rates, consolidating debt, borrowing more money by taking out equity, borrowing more money by topping up the mortgage amount, borrowing more money by combining and extending the mortgage, change in borrower situation What kind of mortgage can't be refinanced Closed-term mortgage with no payout option Documentation for refinancing Payout statement, current interest rate, penalty amount for breaking the term of the loan, property ownership information, mortgage statement Two main ways to borrow equity For a second mortgage, through a secured line of credit If a borrower is in the middle of a mortgage term and wants to refinance she can... Pay out the existing mortgage and arrange a new mortgage, top up and combine, combine and extend Top up and combine deal Involves borrowing additional funds and adding them to the current mortgage amountThe interest rate for the new money is combined with an interest rate for the old money. Gets an average