Chapter 7 Flashcards
(45 cards)
- Loan to an individuals or business to purchase real property
- secured, or collateralized, loans
- assets purchased are collateral against the loan
- mortgage holder, or lender, has a ‘lien’ on the assets
mortgage
Securities packaged and sold as assets backing a publicly traded or privately held debt instrument
securitized
4 types of mortgages
- home
- multifamily
- commercial
- farm
A public record attached to the title of the property that gives the financial institution the right to sell the property if the mortgage borrower defaults.
lien
used to purchase one-to-four family dwellings
- largest loan category
- “residential”
home mortgages (also called single-family mortgage)
used to finance the purchase of apartment complexes, townhomes, and condominiums
multifamily dwelling
are used to finance the purchase of real estate for business purposes (office buildings, shopping malls)
commercial mortgages
used to finance the purchase of farmland, buildings, etc.
farm mortgages
lenders have liens against properties until the loan is fully paid off
collateral
A portion of the purchase price of the property a financial institution requires the mortgage borrower to pay up front
- 5-10% (book says 20%) is required
down payment
Insurance contract purchased by a mortgage borrower guaranteeing to pay the financial institution the difference between the value of the property and the balance remaining on the mortgage
private mortgage insurance (PMI)
required for all single-family mortgages with loan-to-value ratios greater than 80%
private mortgage insurance (PMI)
Mortgages issued by financial institutions that are not federally insured.
conventional mortgages
Mortgages originated by financial institutions, with repayment guaranteed by either the Federal Housing Administration (FHA) or the Veterans Administration (VA).
federally insured mortgages
- limits to amount borrowed, by region
- down payments may be as little as 3.5%
federally insured
- agreement between bank and borrower
- still standardized
- may be privately insured
conventional
- potential saving in total interest paid
- monthly mortgage payments are higher
- lower degree of interest rate risk
- generally charge a lower interest rate
15-year mortgage
A mortgage is ___ when the fixed principal and interest payments fully pay off the mortgage by its maturity date.
amortized
- monthly payments
- mortgage principle paid off generally over time
- each payment pays accrued interest plus some principle
- time value of money (FV = 0)
amortization
A mortgage that locks in the borrower’s interest rate and thus the required monthly payment over the life of the mortgage, regardless of how market rates change.
fixed-rate mortgage
A mortgage in which the interest rate is tied to some market interest rate. Thus, the required monthly payments can change over the life of the mortgage.
adjustable-rate mortgage (ARM)
- borrower pays fee up front (% of principle value)
- lender lowers interest rate on loan
discount points
(One discount point paid up front is equal to 1 percent of the principal value of the mortgage)
covers the issuer’s initial costs of processing the mortgage application and obtaining a credit report
application fee
confirms the borrower’s legal ownership of the mortgaged property and ensures there are no outstanding claims against the property
title search
