Section 16: Real Estate Financing: Mortgage Loans Unit 1

Sinclair wants to purchase his neighbor's property, but he can't afford both his home and the neighbor's home. What can he include in the offer to protect himself if his current home doesn't sell?

Sale contingency

Upon examination of his mortgage document, Jared finds a clause stating he will owe additional interest if he pays off his loan within one year of the loan origination date. What type of penalty does this describe?

prepayment

Jim decided to refinance his three-year-old mortgage that has a balance of $300,000. He has to pay a fee of 5% of the loan amount to the original lender for paying off the mortgage early. What is this fee called?

prepayment penalty

discount point

An upfront charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires

Gerard has been offered a 4% interest rate on a $300,000 mortgage. His monthly mortgage payment would run about $950 per month. He plans to pay $2,000 up front to drop his interest rate to 3.75% and his payment to $920 per month. What is this upfront charge called

Discount point

All private and public lenders are subject to usury laws (True or False)

False

In a mortgage, the property is used as collateral for the loan. What's the term for the process of pledging something as collateral?

Hypothecation

Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean?

Maggie will take over Jim's loan payments without telling his lender she's doing so.

Which of the following is a promise from the borrower to repay a certain sum of money to another party (the lender or holder of the note) under specified terms?

Promissory note

With this type of mortgage, the borrower receives a below-market interest rate. In return, the lender receives equity in the property. What is it?

Shared appreciation

Buyer Sheila entered into a purchase agreement for her dream home, and included no contingency for selling her currently owned home because it was already under contract. However, the contract on Shelia's for-sale home fell through. What's the issue here?

Sheila could be contractually obligated to pay two mortgages. Sheila's desire to sell her existing property may present an unreasonable timeline for the seller in certain markets, and she should have included a contingency to address that issue in the purchase contract she entered into for her new home.

Sheila's financing calls for the use of a promissory note. What's a promissory note?

The borrower's promise to repay a certain sum of money to another party (the lender or holder of the note) under specified terms

A shared appreciation mortgage is a mortgage in which the borrower initially receives an interest rate below the going market rate. In exchange, the lender receives equity or a percentage of the appreciation in the property's market value.

The lender executes and records a satisfaction of mortgage and returns the note to the borrower

When a borrower has paid off the loan, how is the release handled if the security instrument is a deed of trust?

The trustee executes and records a deed of reconveyance and the lender returns the note to the borrower

Usury laws vary by state. (True or False)

True

How are subject to and assumption different?

a mortgage assumption is when the sellers name is removed from the mortgage and the new buyer becomes directly responsible to the lender under an assumption the new buyer has to go through loan qualifications just as though they were applying for a brand new loan by contrast with subject to financing the seller remains on the loan which means they are so technically liable if the investor stops making payments.

"Subject to"

buyer essentially takes over the seller's remaining mortgage balance, without making it official with the lender.

fixed rate

has an interest rate that remains constant over the life of the loan

What type of loan is given based on the amount of equity a borrower has in the home?

home equity loan

acceleration

makes the loan immediately due and payable