REF CH 7

• Points


  Percentages based on the amount of the loan
• Conforming loan


  Conventional loans that conform to FNMA/ FHLMC standards
• Balloon loan


  Partially-amortized loan with a substantially larger final payment
• Blanket mortgage


  A loan which covers more than one piece of property
• Churning


  Excessive selling/lending activity for the purpose of generating fees and commissions
• Interest


  Is money paid at a particular rate for the use of money loaned to a person or entity
• I = PRT


  Principal × Rate ×Time = Interest
• I = PRT


  Interest / Rate = Principal

  Interest / Principal = Rate
• Time can be

  Semi-Annual = 6 Months

  Quarterly = 4 times per year

  Yearly = 12 months

  1 Quarter = 3 months
• What will the annual interest be for a loan of $5,000 at 9% interest?


  Answer: $450

  $5,000 × .09 = $450

  Principal × Rate = Interest
• What will the quarterly interest payments be for a loan of $10,000 at 8%?


  Answer: $200

  $10,000 × .08 = $800/4 = $200

  Principal × Rate = Interest / 4
• What is the interest rate if the loan is $55,000, and the annual interest owed is $6,500?

  Answer: 11.8%

  $6,500/ $55,000 = 11.8%

  Interest / Principal = Rate
• What was the amount borrowed if the annual interest rate is 9 1/2%, and the interest paid was $4,500?


  Answer: $47,368.42

  $4500/ .095 = $47,368.42

  Interest / Rate = Principal
• Interim Interest Per Diem Interest


  the lender charges daily interest to the borrower from the day of closing through the end of the month
• To calculate interim interest

  the loan originator must determine how many days remain in the month from the day of closing to the end of the month.
• The basic formula to calculate interim interest is:

  Principal × Payment Rate / 360 or 365 days × number of days until the end of month = Interim Interest
• Mr. Brown will close on his new home on June 23, 2010. He will close on a 30-year fixed-rate mortgage with an interest rate of 4.50% and a principal balance of $120,000.00. What is the amount of interim interest he will pay at closing? Use a 365-day year.

  $118.36
• Jill’s loan balance on March 1st was reported as $119,670. The regular monthly payment of principal and interest is $896.45, and the rate of interest is 5%, When Jill makes her April 1st payment, how much interest will be due?

  $498.62
• Jill’s loan balance on March 1st was reported as $119,670. The regular monthly payment of principal and interest is $896.45, and the rate of interest is 5%, After the April 1st payment has been applied, what will be her new loan balance?

  $119,272.18
• (PITI)

  Principal, Interest, Taxes and Insurance
• Index


  is what the lender uses as an instrument for measuring changes in interest rates. It is the lender’s barometer of change in interest rates
• The Secured Overnight Financing Rate


  is an interest rate benchmark that is used as a reference rate for a wide range of financial transactions, including loans, derivative transactions, bonds, and mortgages.
• Margin


  The percent added to the index in order to calculate the payment interest rate.
• Fully Indexed Rate


  Is equal to the margin plus the index and is usually to the nearest one-eighth of a percent.
• INDEX + MARGIN = FULLY INDEXED RATE
• Discounted Initial Rate (teaser rate)


  The lender offers a lower interest rate during the first year or more of the loan.
• Interest-rate Caps


  places a limit on the amount the interest rate can increase or decrease at each adjustment date. Rate caps limit how much interest can change.
• Per-Adjustment Cap


  limits how much a payment may increase or decrease in any subsequent adjustment.
• Lifetime Cap


  Limits the interest rate increases over the life of the loan
• ADVANTAGES OF ARM MORTGAGE LOANS


  Lower interest rate

  Higher loans

  Falling rates
• DISADVANTAGES OF ARM MORTGAGE LOANS


  Early refinancing

  Unpredictable home mortgage payments

  Long-term cost

  Confusion
• BLANKET MORTGAGE


  covers more than one piece of property. A builder may buy more than one lot in a new subdivision; he will do so with one loan
• PACKAGE MORTGAGE


  includes both real and personal property (fixtures and furnishings). Furnished condominiums in resort areas are often sold this way
• BUDGET MORTGAGE


  the monthly house payment includes principal, interest, taxes, and insurance (known as PITI). The tax and insurance portion of the payment is held in a special account called an escrow account. It is also called an impound, trust, or reserve account.
• WRAPAROUND MORTGAGE


  is a method of financing that preserves the low, existing interest rate on the original note. The wraparound is seller financing, in which a new loan takes a secondary lien position, and the original mortgage is not repaid.
• OPEN-END MORTGAGE


  permits additional borrowing on the same note and mortgage. This is a Home Equity Line of Credit or HELOC. The minimum withdrawal on this line of credit is $4,000 in Texas
• CLOSED-END MORTGAGE


  for a specific dollar amount and does not allow for additional borrowing on the same note and mortgage
• REVERSE MORTGAGE


  Borrow against the equity in their property. The loan becomes due upon the sale of the property or the death of the owner. The borrower can NEVER be forced to sell the home. This is considered the most expensive home equity loan because the debt continues to accrue or grow with interest, and heirs will inherit the property with a lien on it
• LOAN-TO-VALUE RATIO (LTV)


  is the percentage of the lesser of the appraised value or sales price that the lender will lend.
• The Homeowners Protection Act (HPA)


  requires that borrower-paid PMI be canceled automatically once the borrower has paid down the loan to an LTV of 78%, based on the original value of the property