REFM Prerequisite III

what is a hybrid amortization schedule?

A loan amortization schedule that is not constant throughout the entire loan term (e.g., an amortizing loan with a front-end interest-only period).

what is a draw request?

A periodic request from a construction loan borrower that the lender advance funds (based on project costs incurred for which the borrower has been invoiced or for which they have already paid)

negative amortization loan (accrual construction loan)

A short-term loan provided by a lender for the purpose of new property construction. The principal amounts needed for incurred project costs are borrowed monthly (through a loan draw request) and loan interest accrues (accumulates) and is added to the loan principal balance.

what is an annuity?

A sum of money paid annually or at some other regular interval

what is capitalized interest?

Construction loan interest amounts that are charged but allowed to accrue (accumulate) and be added to the loan principal balance (instead of being paid current each month.)

what is current-pay interest?

Interest payments made monthly.

positive amortization

Occurs when the monthly mortgage payment decreases the loan balance

fully-amortizing loan

a loan whose term and amortization schedule are equal

the debt service is deducted from the...

cash flow

interest payments are paid with _________ while the principal debt service loan will be paid off with _________

cash flows generated from operations; the property sale proceeds

how does an interest-only loan work?

interest is paid on the outstanding principal until the time of the final monthly payment, when the principal balance is also paid

how to calculate the annual payment

multiply the loan principal by the percentage indicated for a given interest rate and amortization period

what does principal mean

the capital amount borrowed

balloon payment

the final payment plus all remaining principal due if the loan matures sooner than the amortization period

the shorter the amortization period...

the greater are the annual payments

the faster the amortization

the lower the total interest payments

mortgage constant

the percentage of the original loan principal amount, that when multiplied by that full principal amount, produces the constant annual loan payment amount inclusive of interest and principal

(what is) amortization

the repayment schedule for the mortgage loan principal

another term for interest-only loan

zero-amortization (bullet) loan