UGA REAL 4000 Singh test 3 Exam |100
Questions and Answers
two documents used to create a mortgage loan - -note and mortgage
- note - -Contract that establishes the financial obligation and the exact
terms of the loan; creates the obligation to repay the loan in accordance with
its terms
- mortgage - -contract by which the borrower grants the lender a security
interest in the property; ties the real estate being financed to the loan used
to pay for the real estate
- Fixed Rate Mortgage - -interest rate is stated and does not change during
the life of the loan
- Adjustable Rate Mortgage (ARM) - -interest will change at some point
during the life of the loan
- variations on how ARMs change - --interest rates on some construction
loans change every month
-once was a 40 year loan that changed rates after 20 years
- How is the initial rate calculated? - -The annual rate of interest is
calculated as the sum of an index rate plus a margin
- index rate - -market determined rate beyond control of either borrower or
lender
- margin - -the lenders markup and reflects the differences in risk between
the index rate and the loan
- what is the margin usually between? - -200-300 basis points; 100 points =
1%
- for ARMs, how often does the interest rate change? - -frequency of change
is stated in the note
- longer lock - -smaller interest rate savings
- shorter lock - -larger interest rate savings
- teaser rate - -an initial interest rate that is temporarily reduced to some
value below index + margin
, - Why is it important to know if there are teaser rates? - -they can lead to
large one time jumps in the loan's interest rate and payment when they
expire
- periodic caps - -limit how much the payment or interest rate can change
at any one time
- lifetime caps - -limit how much the payments or interest rate can change
in total during the life of the loan
- payments can be: - --fully amortizing
-partially amortizing
-nonamortizing
- fully amortizing - -interest obligation is paid off every month and all
principal is repaid by the end of the loan's term
- partially amortizing - --interest obligation is paid off every month but there
is still principal outstanding when the loan reaches maturity
-common for commercial mortgages where there are separate and different
loan and amortization terms
-requires a final balloon payment
- Nonamortizing - --Interest obligation is paid off every month but the
payment terms do not require any principal to be repaid
-entire principal balance is due when the loan matures
-known as (IO) loans
- right of prepayment - -clause gives the borrower the option to pay down
the mortgage at any time
- note wording about right of prepayment - -1: the note may say nothing
about prepayment
2: the note may grant the borrower the right to prepay without penalty
3:the note may allow the borrower to prepay if they pay a prepayment
penalty
- prepayment penalties are common for: - --Large residential mortgages
(jumbo mortgages)
-subprime mortgages
-most commercial mortgages
- subprime mortgage - -loans to borrowers with bad credit or inability to
document income
Questions and Answers
two documents used to create a mortgage loan - -note and mortgage
- note - -Contract that establishes the financial obligation and the exact
terms of the loan; creates the obligation to repay the loan in accordance with
its terms
- mortgage - -contract by which the borrower grants the lender a security
interest in the property; ties the real estate being financed to the loan used
to pay for the real estate
- Fixed Rate Mortgage - -interest rate is stated and does not change during
the life of the loan
- Adjustable Rate Mortgage (ARM) - -interest will change at some point
during the life of the loan
- variations on how ARMs change - --interest rates on some construction
loans change every month
-once was a 40 year loan that changed rates after 20 years
- How is the initial rate calculated? - -The annual rate of interest is
calculated as the sum of an index rate plus a margin
- index rate - -market determined rate beyond control of either borrower or
lender
- margin - -the lenders markup and reflects the differences in risk between
the index rate and the loan
- what is the margin usually between? - -200-300 basis points; 100 points =
1%
- for ARMs, how often does the interest rate change? - -frequency of change
is stated in the note
- longer lock - -smaller interest rate savings
- shorter lock - -larger interest rate savings
- teaser rate - -an initial interest rate that is temporarily reduced to some
value below index + margin
, - Why is it important to know if there are teaser rates? - -they can lead to
large one time jumps in the loan's interest rate and payment when they
expire
- periodic caps - -limit how much the payment or interest rate can change
at any one time
- lifetime caps - -limit how much the payments or interest rate can change
in total during the life of the loan
- payments can be: - --fully amortizing
-partially amortizing
-nonamortizing
- fully amortizing - -interest obligation is paid off every month and all
principal is repaid by the end of the loan's term
- partially amortizing - --interest obligation is paid off every month but there
is still principal outstanding when the loan reaches maturity
-common for commercial mortgages where there are separate and different
loan and amortization terms
-requires a final balloon payment
- Nonamortizing - --Interest obligation is paid off every month but the
payment terms do not require any principal to be repaid
-entire principal balance is due when the loan matures
-known as (IO) loans
- right of prepayment - -clause gives the borrower the option to pay down
the mortgage at any time
- note wording about right of prepayment - -1: the note may say nothing
about prepayment
2: the note may grant the borrower the right to prepay without penalty
3:the note may allow the borrower to prepay if they pay a prepayment
penalty
- prepayment penalties are common for: - --Large residential mortgages
(jumbo mortgages)
-subprime mortgages
-most commercial mortgages
- subprime mortgage - -loans to borrowers with bad credit or inability to
document income
