NONTRADITIONAL MORTGAGE PRODUCTS

What is considered a traditional mortgage?

a 30-year fixed rate mortgage

What is considered a non-traditional mortgage?

Anything other than a 30-year fixed rate mortgage

According to what law is a traditional mortgage a 30-year fixed rate mortgage and a non-traditional mortgage anything other an a 30-year fixed rate mortgage?

SAFE Act

Whose standards does a conforming mortgage need to meet?

Fannie Mae and Freddie Mac

What type of mortgage can be sold on the secondary market?

Conforming Mortgage (meets standards set by Fannie Mae and Freddie Mac)

What is the primary market and what is the secondary market?

The primary market is where we as people get loans

The secondary market is where lenders sell loans to one another

What is another name for a non conforming mortgage?

Jumbo loan

What type of mortgage cannot be sold on the secondary market and why?

non conforming mortgage or jumbo loan 

because it does not meet standards of Fannie Mae and Freddie Mac

How does a Subprime loan compare to a prime/conforming loan?

it allows more risk than is allowed in the conforming loan market

What is secondary financing?

when a buyer borrows money from ANOTHER SOURCE other than the primary lender to pay part of the purchase price or closing costs

What does a secondary lender traditionally require?

might require a 5% down payment

What is a fixed rate?

when the payment is fixed and is not going to change

loan terms remain constant for the life of the loan

What are typical loan term lengths for a fixed rate?

15 or 30 years

What is an interest only payment mortgage?

period of reduced payments, for a specified time, then payment increases to full amortize (payments now cover principal and interest) by end of term

it is a type of mortgage where you are only paying interest initially

What is another name for an interest only payment mortgage?

Straight note

What does ARMs stand for?

Adjustable Rate Mortgage

What are ARMs?

Interest rate periodically adjusted to reflect fluctuations in cost of money

may start with a lower initial interest rate (an initial fixed rate period) 

may be a good option for people who plan to sell or refinance before adjustment period begins

What is a note?

Promissory note

legally binding document where the borrower promises to repay the loan to the lender under specific terms

What is straight note?

interest only note where it calls for payments of interest-only during term of note

What type of note has a balloon payment?

Partially amortizing installment note

What is a partially amortizing installment note?

periodic payments of principal/interest during loan term (typically lower than what you would get with a fully amortizing loan) and then a balloon payment at the end of term to pay off balance due

the regular payments may be based on a longer amortization period (30 years) than actual loan terms (10 years)

What is negative amortization?

-where monthly payment is not sufficient to cover interest so it keeps adding to the back of the loan

-monthly payment is not sufficient to cover the accrued interest from previous month

What type of loan do you have where you are making a payment every month but the balance still grows?

negative amortization

What is another name for a fully amortizing loan?

self-liquidating loan

What type of loan is it where borrower makes payments every month for 30 years and at the end of the 30 years, the whole thing is paid off?

fully amortizing loan or self-liquidating loan (loan liquidates itself or is fully amortized)

What does a fully amortizing installment note look like?

calls for regular payments of principal/interest calculated to pay off entire balance by the end of the loan term

What is the acceleration clause?

gives lenders the right to declare entire loan balance due IMMEDIATELY because of borrower DEFAULT or for violation of other contract provisions 

speeds up (steps on gas) when payment is due because of default (payment is 60 days late for example)

What is the alienation clause?

gives lender certain stated rights when there is a TRANSFER OF OWNERSHIP in the property 

What is another name for alienation clause?

due on sale clause

What is the equation to calculate the rate on an adjustable rate mortgage?

Index + Margin= Rate

What term is often referred to as the cost of the money?

Index

What term is often referred to as the spread?

margin

What part of the rate adjusts (goes up and down)?

Index

What part of the rate remains fixed for the life of the loan and is the profit that the bank makes?

Margin

What is another name for interest rate on an adjustable rate mortgage (ARM)?

fully indexed rate

What is another name for buydown?

discount points

What is a buydown plan?

discount points can be paid to buy down interest rate and/or lower monthly mortgage

or 

discount points paid to lower the rate 

you can pay money up front to get a lower rate

What is the difference between temporary and permanent buydowns?

temporary buy downs reduce payments for a SPECIFIC PERIOD of time whereas permanent buy down reduce payments for the LIFE of the loan

Point = _% of the _

1, loan amount

What are points always calculated on?

the loan amount

How old do you have to be to qualify for a reverse mortgage?

62 years old

What is a reverse mortgage?

converting equity in home into typically monthly payments without selling the home or making payments

What rises in a reverse mortgage and what shrinks?

the balance of the loan increases

equity shrinks

balance of loan rises as equity shrinks

What is the name of a popular FHA reverse mortgage loan?

Home equity conversion mortgage (HECM)

What is the tenure payment option for reverse mortgages?

equal monthly payments while living in the property (payment over time> monthly checks)

When is a reverse mortgage due or when does the lender take away the reverse mortgage?

When the last surviving borrower: 

1. dies 

2. sells the home 

3. ceases to live in home for 12 consecutive months

4. Does not pay taxes and insurance

What is another name for a balloon payment?

partially amortized loan

What is a Hybrid ARM?

an adjustable rate mortgage with an initial rate period greater than 1 year (period). For example, 3/1 (fixed mortgage for first 3 years and then after period, it adjusts every year), 5/1, 7/1, or 10/1 ARMs. It can be fixed and adjustable.

What is a bi-weekly mortgage?

borrower has to make payments every other week

payment plan on fixed rate mortgage set up like a standard 30-year conventional loan but the payments are made every two weeks instead of every months. 

In a bi-weekly mortgage plan, how many payments are made in a year?

26 

which equals one extra monthly payments each year 

13 full payments

What does a blanket mortgage cover?

more than 1 parcel of land or lot

What are blanket mortgages generally used for?

finance subdivision developments

What mortgage has a partial release clause and what is it?

blanket mortgage

allows the borrower to pay a certain amount to release some of the lots with the mortgage continuing to cover the remaining lots

What is a bridge mortgage?

Occurs between the termination of one mortgage and the beginning of the next. When the next mortgage is taken out, the bridge mortgage is repaid. 

bridges the gap between 1 loan and another

short-term loan that allows a homeowner to use the equity from their current home to buy a new one before selling the old one

Ex: say you need money from sale of current home to pay for the downpayment on your new home, but you have not sold your old home yet> you can get a bridge mortgage

What is a cash-out mortgage/refinance?

allows borrowers to get cash for the equity that has built up in a property, but still retain ownership

What type of loan must have a net-tangible benefit?

Cash-out mortgage/refinance

What is another name for a closed-end loan?

Home equity loan

What is another name for an open-end loan?

Home equity line of credit (HELOC)

It functions like a credit card with a set credit limit. You can draw funds as you need them, repay them, and then borrow them again during the draw period

What is it called when you are given the full $50,000 upfront as a lump sum against the equity of your home with fixed monthly payments?

Home equity loan

What is it called when you can borrow up to that $50,000 credit limit against the equity of your home, and you can access the funds as needed, similar to a credit card?

Home equity line of credit (HELOC)

What is another name for a construction loan?

Interim loan

What is a construction loan?

temporary loan used to finance the building or renovating of a property

when the construction is complete, the appraiser verifies that specifications have been met and the original opinion of value is valid 

What type of loan replaces the construction loan once the project is complete?

Take out loan (permanent financing)

What are two other names for Equity Participation Mortgage?

Shared Appreciation Mortgage (SAM)

participation plan

What is a SAM/Equity participation Mortgage/participation plan?

allows the lender to share parts of the earning, income, or profits from a real estate project 

lender gets a part of your equity when you sell it 

What is a package mortgage 

A mortgage that includes personal property, like appliances, in the property sale and all are financed together in one contract

What is the added security instrument called that is often required to lien the personal property portion of the sale? What type of mortgage is this?

UCC (uniform commercial code)

Package mortgage 

What is a wraparound mortgage?

When an existing loan on property is retained, while the lender gives the buyer another, larger loan.

The total debt (the new second loan plus existing loan) is treated as a single obligation by the buyer, with one payment made on the entire debt.