Chapter 11 - Finance Flashcards Preview

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Flashcards in Chapter 11 - Finance Deck (24)
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1
Q

Promissory Note

A

– Piece of mortgage that says you’ll pay –
Creates the debt (is evidence of the loan
Gives terms (loan amount; interest rate; time and method of payment; obligation to repay)
A note can be FREELY BOUGHT OR SOLD - it is negotiable

2
Q

Mortgage or a deed of trust IS A ______

A

contract.

3
Q

Mortgage specifics

A

Legal document to secure the performance of an obligation.
Purpose of mortgage is to create a lien on mortgaged property as security for debt
Two parties:
1) Borrower (mortgagor)
2) Lender (mortgagee)

4
Q

Deed of trust specifics

A

similar to a mortgage
Main difference is it involves 3 parties:
1) Borrower (trustor, giver of promise)
2) Lender (beneficiary of the trust deed)
3) Trustee (neutral 3rd party who files the deed of trust)
—– ex. if there is a foreclosure

5
Q

Does a defaulting borrower ever have a chance to redeem themselves once foreclosures start?

Called buybacks

A

Yes - 2 ways (called buybacks)

1) Equiptable Redemption: paying off the loan plus expenses and penalties before the actual sale
2) Statutory Redemption: pay off the loan plus expenses and penalties after the foreclosure sale
- —-Time period before new buyer takes possession. During statutory time period - they can pay off loan.

6
Q

What is a short sale?

A

Mortgagor is behind on payments
- Bank allows home to be sold for less than total amount owed

Short sale deficiency (or shortage)

1) Bank may release borrower from the responsibility of the deficiency
2) Bank may allow them to pay for it over time.

7
Q

3 Types of Notes - Mortgages - Payment Plans

A

Straight Note
Fully Amortized Note
Partial Amortized Note

8
Q

Straight Note

A

INTEREST ONLY LOAN
Buyer only pays interest each month, total principal is due at end of term.
*end of life cycle, they owe all prinicpal

9
Q

Fully Amortized Note

A

PART INTEREST / PART PRINCIPAL

  • Lender wants their money up front, so beginning period of loan is mainly interest payments
  • Over time the interest payments go down and then prinicipal payments increase
  • end of life cycle it’s fully paid off
10
Q

Partially Amortized Note

A

BALLOON PAYMENT

  • Part of each monthly payment toward principal and interest.
  • At a certain point a balloon payment is due on remaining balance and payable at once
  • end of life cycle they owe large, lump sum payment
11
Q

Debt Service

A

Is the principal and interest part of the payment each month

12
Q

Leverage

A

Using borrowed money to make money

13
Q

Equity

A

Difference between loan balance and market value of your property

14
Q

Amortization

A

Loan where balance is reduced each month through regular payments that go toward principal and interest

15
Q

Points
1 point = ?

What’s another name for it?

_____ + ____ = Yield

A

Pre-paid interest charged by a lender that is paid at time of loan origination
1 Point = 1% of the loan amount

AKA DISCOUNT POINT
Points increase the lenders yield

Rate + Points = Yield

16
Q

Loan-to-Value Ratio

A

amount of a loan expressed as a percentage to the value of the property

17
Q

Escrow

A

Process by which money and/or documents held by a disinterested third party until satisfaction of T’s & C’s

18
Q

Loan Origination Fee

A

fee to generate the loan

19
Q

Foreclosure Sale - where do proceed go?

A

1st - property taxes are paid
2nd - other liens (including mortgage)
3) defaulting borrower (or in order of filing)

20
Q

Deficiency Judgment

A

If proceeds from foreclosure sale are not enough to cover debt.
It’s a judgment against the mortgagor for lien against all debtor’s assets

21
Q

Deed in Lieu of Forclosure

A

Borrower deeds the property back to lender to avoid foreclosure

22
Q

Hypothecate

A

using specific real or personal property as security for an obligation without surrendering possession of it
–example, your home (that is being mortgaged) is security for the debt

23
Q

Pledging

A

Transfer or delivery of property to a lender as security

24
Q

Interest

Another name?

A

‘Simple Interest’

The amount you pay to borrow money