FINA 4380 Midterm #1

Property

Any tangible or intangible thing that can be possessed, used, controlled, or conveyed and that has value or utility.

Real Property

Land and anything permanently attached to it, such as buildings or sidewalks.

Property Rights

Rights of ownership including possession, use, enjoyment and control

Fee Simple Estate

The most complete ownership interest in real estate.

Life Estate

Ownership lasting for the life of a specifc person.

Leasehold Estate

Temporary right to possess property through a lease

Easement

Right to use another person’s land for a specific purpose

Encumbrance

A claim or liability aganist property sucha. lien or mortgage

Title

Legal evidence of property ownership

Deed

A written document transferring property ownership

General Warranty Deed

Guarantees the property title is free of defects except those listed

Quitclaim Deed

Transfers whatever ownrship interest the grantor has without guarantees

Promissory Note

Written promise by a borrower to repay loan

Mortgage

Legal document pleding property as security for a loan

Mortgagor

Borrower in a mortgage agreement

Mortgagee

Lender in a mortgage agreement

Loan-to Value Ratio(LTV)

Loan amount divided by property value

Purchase-Money Mortgage

Mortgage given by a buyter to the seller as aprt of the purchase price

Default

Failture to meet loan obligations

Foreclosure

Legal process where lender sells property to recover unpaid debt.

Deficiency Judgement

Remaining debt owed after foreclosure sale proceeds are applied

Present Value(PV)

Value today of a future amount of money

Future Value(FV)

Value of money at a future date after earning interest

Compound Interest

Interest earned on both the principal and accumlated interest

Annuity

Equal payments made at regular intervals

Present Value of an Annuity

Value today of a series of future payments

Future Value of an Annuity

Value of periodic payments accumulated with interest.

Internal Rate of Return(IRR)

Discount Rate that makes the NPV of an investment equal zero

Nominal Interest Rate

Contract interest rate stated on a loan

Real Interest Rate

Minimum return required to induce saving

Fully Amortizing Loan

Loan where payments fully repay principal and interest by maturity

Partially Amortizing Loan

Loan with payments that do not fully repay the principal

Interest-Only Loan

Loan where payments cover only interest during the term

Negative Amortization

Loan balance increases because payments are less than accrued interest

Discount Points

Upfront feeds paid to lower the interest rate

Index

Market interest rate used to adjust ARM rates

Margin

Additional percentgage added to the index to determine loan rate

Composite Rate

Total ARM rate(index + margin)

Reset Date

Date when ARM rate and payment are adjusted

interest Rate Cap

Limit on how much the interest rate can increase

Incremental Borrowing Cost

Effective interest rate on additional borrowed funds

Loan Refinancing

Replacing an existing mortgage with a new one

Prepayment Penalty

Fee for paying off a loan early

Market Value of a Loan

Present value of remaining loan payments at current market rates

Cash Equivalency

Converting financing benefits into an equivalent cash value

Wraparound Loan

New mortgage that includes an existing loan plus additional loans

Buydown Loan

Loan where a payment is made upfront to reduce the interest rate temporarily.