Adjustable Rate Mortgage (ARM) - Correct Answer Amortized loan where interest rate fluctuates. 2 important elements: Index (foundation rate for loan that must be published and is beyond control of the lender) and margin (% added to index rate by lender to cover lender's overhead and provide profit...
Gold Coast Chapter 13 Key Terms (100% CORRECT)
Adjustable Rate Mortgage (ARM) - Correct Answer Amortized loan where interest rate fluctuates. 2
important elements: Index (foundation rate for loan that must be published and is beyond control of the
lender) and margin (% added to index rate by lender to cover lender's overhead and provide profit on a
loan. Margin does not change for life of the loan. Fed law requires lender to lower rate when index goes
down).
Amortized loan - Correct Answer Loan with scheduled payments with a portion towards principal. Fully
amortizing means payment is sufficient to repay interest owed and loan amount in full over life of the
loan.
Balloon payment - Correct Answer Principal amount borrowed repaid in lump sum payment called
balloon payment at the end of a term of a term mortgage
Biweekly mortgage - Correct Answer Requires that one half of mortgage payment be paid every 2 weeks
instead of once a month. By doing this, a loan can be paid off in 21 years instead of 30 years.
Blanket mortgage - Correct Answer Single mortgage given by a borrower that pledges two or more
parcels as security for the loan
Conventional mortgage loan - Correct Answer Loan that is not insured or guaranteed by an agency of
the government. More difficult for borrower to obtain than under FHA or VA, have higher interest rates.
PMI required when loan amount exceeds 80% of value of property. PMI automatically cancelled when
LTV ratio 78% or less than property's original value.
Conforming loan - Correct Answer a standardized conventional loan written on uniform documents that
meets the purchase requirements of Fannie Mae and Freddie Mac - both loan amount and borrower
characteristics must meet the guidelines
chattel mortgage - Correct Answer uses only personal property as security for the loan
Disintermediation - Correct Answer Occurs when depositors bypass traditional depository institutions
and withdraw from accounts with low fixed interest rates, transferring funds to other investments with
higher interest yields, such as the stock market.
, Home equity loan - Correct Answer Loan secured by equity in the home. Commonly used to finance
home remodeling.
FHA section 203(b) mortgage insurance - Correct Answer 1. FHA section 203(b) mortgage insurance
provides basic mortgage insurance for the purchase of a 1-4 family property. Loan amount is limited,
with a downpayment of at least 3.5%. Standard LTV ratio is 96.5%. Housing expense ratio of 31% and
total obligations ratio of 43%. Interest rates determined via negotiation by lender and borrower.
Borrower has right of prepayment without penalty. Max loan term of 30 years at a fixed rate. An
appraisal paid for by the buyer is required to make sure property meets certain standards.
FHA section 203(k) rehabilitation mortgage insurance - Correct Answer Enables homebuyers to finance a
home plus cost of its rehabilitation through single long term mortgage. The value of the property is
determined by either (1) the value of the property before rehabilitation plus the cost of rehabilitation or
(2) 110% (LTV) of the appraised value of the property after rehabilitation, whichever is less.
FHA Section 234(c) Condominiums - Correct Answer Insures a loan for 30 years for purchase of a single-
unit condo
FHA section 251 Adjustable rate mortgages - Correct Answer 1,3, and 5 year ARM loans are available
with interest rates that cannot change by more than 1% per year after fixed rate period, with max rate
increase of no more than 5%. 7, 10 year loan rates cannot change more than 2% per year, no more than
6% over life of loan.
Federal Reserve System - Correct Answer central bank established by Congress in 1913 to give the
country an elastic currency, provide a system for discounting commercial paper, and to improve the
supervision of the banking industry. It is made up of regional banks that are managed by a Board of
Governors.
Calculating interest portion for loan payment - Correct Answer I = P x R x T
I = interest portion
P = principal portion
R = interest rate
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