Chapter 29: Advance Finance

Open-End Mortgage

A loan containing a clause which allows the mortgagor to borrow additional money without rewriting the mortgage.

Graduated Payment Mortgage (GPM)

A loan in which the monthly principal and interest payments increase by a certain percentage each year for a certain number of years and then level off for the remaining loan term.

Amortized Loan

A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

partially amortized loan

A loan requiring payments of both principal and interest, but when the final payment is made, a balloon payment is required to retire the loan.

Wraparound Mortgage or All Inclusive Trust Deed

A loan that encompasses on or more exsisting loans

fully amortized loan

A loan that requires payments of both principal and interest. When the last payment is made, the loan is retired.

Straight Note

A loan that requires payments of interest only, sometimes called a term loan. Usually the entire principal is paid off in one balloon payment at the end of the loan.

Negative or Reverse Amortization

A loan that requires payments of no principal and only part of the interest. The unpaid interest is added to the principal. This technique is used on some graduated payment mortgages.

Participation Loan

A loan where the lender becomes an investor or owner in the project for which the money is being loaned.

Subject to a loan

A method of taking title to a property with a mortgage on it without becoming liable for the note payments

Purchase Money Mortgage

A mortgage given by the seller to the buyer to cover all or part of the sale price. Seller financing.

Balloon Mortgage

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Blanket Mortgage

A mortgage which covers more than one piece of real estate. Often used by a developer in the financing of undeveloped lots. Contains a partial release clause.

Amorization Schedule

A schedule that details each loan payment's allocation between principal and interest and the beginning and ending loan balances.

Bridge, Gap, or Swing Loan

A short term loan to help the buyers have up-front funds to get into their new home, when the sale on the old one is going to close later than the closing to purchase the new one.

Reverse Annuity Mortgage

Allows borrowers (62 years or older) to borrow against their equity. Loan is due upon the sale of property or death of owner.

Index

In a ARM loan , a financial indicator which will have the margin added to it to create the adjusted interest rate

Simple Interest

Interest earned only on the original principal amount invested

London Interbank Offered Rate (LIBOR)

Interest rate that international banks charge one another for overnight Eurodollar loans.

Periodic Cap

Limits the amount the interest rate of an adjustable-rate loan may increase at any one time (usually a year).

Package Mortgage

Mortgage covering both real and personal property

take out loan

Once construction is completed and an appraisal obtained, this is a term referring to the permanent, long-term financing for the property

Interest Rate

Percentage rate used to calculate interest

Lifetime Cap

The maximum interest rate adjustment permitted over the life of the loan.

Term Loan

a bank loan that lasts for a specific term

non-recourse loan

a loan that carries neither a penalty nor further obligation to repay if not paid back

unsecured loan

a loan that doesn't require any collateral

Chattel Mortgage

a mortgage on personal property given as security for the payment of an obligation

Adjustable Rate Mortgage (ARM)

a mortgage with an interest rate that increases or decreases during the life of the loan

Treasury Bills (T-Bills)

government bonds issued with terms of four, 13, 26 or 52 weeks

Compound Interest

interest earned on both the principal amount and any interest already earned

Refinance

obtaining a new mortgage to replace an existing one

Margin

the difference between the value that an activity generates and the cost of the activity

Refinancing

the process of obtaining a new mortgage on a home to get a lower interest rate