Unit 10 (Mortgage Basics)

• Mortgage is

• a property used as collateral for a loan (when property is mortgaged, owner must sign two instruments called note or bond and promissory note)

• Note is

• a promise to pay the loan (evidence)

• Promissory note states

• he amount of debt, time and method of payment, and rate of interest (signed by borrower) (don’t need to be witnessed to be enforceable)

• Secured note involves

• a collateral (mortgage)

• Unsecured loan involves

• no collateral (credit card)

• Mortgager is

• the borrower

• Mortgagee is

• the lender

• Duties of a mortgagor are

• paying debt, paying real estate property taxes, having hazard insurance to protect lender

• Default is

• the failure to uphold your duties (missing mortgage payments)

• Grace period last for

• 30 days, where borrower goes through with duties

• Prepayment penalty is

• when the borrower pays off the mortgage too early which allows lender to be compensated

• Acceleration clause is

• meant to help the lender by speeding up the debt that is owed immediately

• Lieu in foreclosure is

• a friendlier alternative to foreclosure, in which there is an agreement and no civil action. (Doesn't show foreclosure on borrowers credit record) negatives are that lenders takes property with junior liens (foreclosure eliminates liens)

• Deficiency judgement is

• when a foreclosure doesn’t come up with the adequate funds to repay loan, so mortgage seeks to add a personal judgment on the borrower (can be attached to future owners as well)

• Subject to a mortgage is

• when buyer purchases property with mortgage still attached, buyer takes up payments for loan but seller is still responsible to lender

• Assumption of mortgage is

• when buyer purchases property and agrees to take on full payments of mortgage (if property becomes foreclosed, deficiency judgements can be attached to assumer and original borrower)

• Mortgage reduction

is the process of decreasing the amount owed on a mortgage, which can occur through payments or refinancing.

• Estoppel certificate

A document that verifies the terms of a mortgage agreement and confirms the amount owed, typically used during property sales or refinances.

• Alienation clause

• on sale of property, lender has a choice to accept or deny entire debt due immediately or allowing buyer to assume loan

• Secondary mortgage market

• sale and purchase of existing notes and mortgages

• First mortgage is

• a mortgage on land that has no prior mortgage liens on it

• Home equity loan

• allows you to get 2nd mortgage

• Down payment

• $100,000 home needs a $10,000 down payment

• Principal is

• the amount borrowed

• Loan to value (LTV)

• amount borrowed divided by the property value/ $90,000 is being borrowed on property worth $100,000, loan is 90% LTV

• Equity

• value of ownership after debts are paid

• Interest is

• a charge made by lender for borrowing lenders money

• Usury

• charging interest higher than the maximum rate of interest of state laws

• Point or discount points

• each one represents 1% (1 percent of $80,000 loan, each point would be $800)

• Annual percentage rate (APR)

• Buy downs

• when lending institutions lower the interest rate in return for payment of extra points (3% first year, 2% second year, and 1% in third year, 321 buy down)

• Loan Servicing

• maintain and managing lenders loans (collecting and crediting payments)

• Conventional mortgage

• without government protection to lender (sourced by lending institution)

• Nonconventional montage

• loans from Federal Housing Administration or by VA (sourced by lending institution)

• Primary mortgage market

• lenders who provide funds to borrowers of real estate

• Institutional lenders are

• banks, credit unions, insurance companies, mortgage banking companies

• Mortgage bankers don’t offer

• savings or checking accounts, they lend their own money (large percentage of home loans)

• Mortgage brokers act as

• third party to lenders and borrowers, bringing them together for a fee

• Purchase money mortgage

• is when seller offers financing to buyer instead of buyer going to traditional bank

• Straight mortgage loan is

• when lender cals for interest to be paid first, then balloon payment which is a bigger sum compared to other periodic payment

• Amortized mortgage loans

• paid in monthly installments, fixed or adjustable interest rate, interest paid first then principal, as principal is reduced less interest is due

• Fully amortized loan is

• when a loan is fully paid off (first 7 years typically pay interest)

• Combo of amortized and straight mortgage loans is a

• partially amortized loan

• Ballon mortgage

• offers low monthly payments for first 5-10 years then huge ballon payment

• Adjustable rate mortgage (ARM)

• fully amortized loan, allows lender to change interest rate being charged

• Negative amortization occurs when

• payment under a loan is not enough to cover the interest due for that period, rest of the amount added to unpaid principal balance

• New York is a what state

• lien theory state (sees mortgage as lien)

• New York has floating usury which is

• when maximum rates are adjusted up or down at specific times by the New York State Banking Board