Real Estate Test 3 Chapter 10 Set 1

Front 1

What are the Two Elements of a Mortgage Loan

Back 1

note and a mortgage

Front 2

Exact terms and conditions of the (loan) financial obligation

Back 2

note

Front 3

Pledges the property as security for the note

Back 3

mortgage

Front 4

What two contracts are always involved in a mortgage loan?

Back 4

a borrower always conveys a note and a mortgage to the lender

Front 5

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.

Back 5

adjustable rates

Front 6

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

Back 6

components that must be defined in a notes

Front 7

is the market-determined interest rates that is the “moving part” in the adjustable interest rate. Cannot be influenced by the borrower or lender

Back 7

index rate

Front 8

for loans on income producing property. Generally home mortgage lenders must notify borrowers of interest rate changes at least 30 days in advance

Back 8

common index known as the LIBOR Rate

Front 9

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.

Back 9

the margin

Front 10

• 200 to 300 basis points (bp)
• Average is extremely stable at 277 - 278 bp

Back 10

margin

Front 11

Date that interest rate changes each time

Back 11

change date

Front 12

what are the two kinds of limits, known as caps, that commonly restrict the change in ARM adjustable rates.

Back 12

periodic caps, and overall caps

Front 13

Limit on payment changes rather than interest rate changes
Can result in negative amortization: Unpaid interest added to the balance

Back 13

payment caps

Front 14

• Most ARM home loans have been marketed with a Initial, temporarily reduced interest rate know as

Back 14

teaser rate

Front 15

it may pay down partially over a certain number of years, but may require an additional payment of principal with the last scheduled payment.

Back 15

• Partially amortizing

Front 16

that determines the payment, and the schedule of interest, and principal payments, just like a fully amortized loan.

Back 16

• Term for amortization

Front 17

it is shorter, determines when the entire remaining balance on the loan must be paid in full. Often called the balloon loan

Back 17

term of maturity

Front 18

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.

Back 18

balloon loan

Front 19

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.

Back 19

subprime loans

Front 20

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.

Back 20

• Yield maintenance prepayment penalty

Front 21

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.

Back 21

• Defeasance prepayment penalties

Front 22

if the borrowers fail to meet the terms of the note, they are in a condition of

Back 22

default

Front 23

relieve the borrower of personal liability, they do not release the property as collateral for the loan.

Back 23

• Non-recourse loan

Front 24

is negotiated in the note that releases the borrower from liability for fulfillment of the contract

Back 24

• Exculpatory clause