Chapter 13 Section 3

Question 1

term mortgage

Answer 1

-provides payments of interest only during the term of the mortgage
-the principal amount borrowed is repaid in a lump sum payment called a balloon payment at the end of the term

Question 2

amortized mortgage

Answer 2

-a loan with scheduled periodic payments where the loan payments typically include a portion that applies to the interest owed and a portion that goes toward repaying the loan, called principal
-most amortized loans are fully amortizing which means the payment is sufficient to repay the interest owed and the loan amount in full over the life of the loan

Question 3

partially amortized mortgage

Answer 3

-the payment is not sufficient to pay all of the interest due and repay the loan in full
-the balance of the original loan remaining unpaid at the end of a partially amortizing loan term is called a balloon payment

Question 4

negative amortization

Answer 4

-when loan payments fail to cover the interest due, and the remaining amount of interest is added to the loan’s principal

Question 5

fixed rate loan

Answer 5

-if the monthly payment remains the same over the term of the loan, the loan is a fixed rate or level payment loan
-in each succeeding payment, the amount applied to pay interest on the loan is reduced and the amount applied to pay principal is increased

Question 6

adjustable-rate mortgage (ARM)

Answer 6

-an amortized loan in which the interest rate fluctuates over the term of the loan

Question 7

index (adjustable-rate mortgage)

Answer 7

-index is a foundation rate for the loan that must be published and is beyond the control of the lender
-two index rates often used by lenders are the weekly average yield on U.S treasury securities called the one-year T-bill rate and the eleventh district cost of funds

Question 8

margin (adjustable-rate mortgage)

Answer 8

-a margin is a percentage that is added to the index rate by the lender to cover the lender’s overhead and provide a profit on the loan
-does not change

Question 9

teaser rate (adjustable-rate mortgage)

Answer 9

-an initial interest rate that is stated on the promissory note that is lower than the fully indexed rate
-intended to encourage mortgage loan borrowers to obtain an ARM instead of a fixed-rate loan

Question 10

rate adjustment date

Answer 10

-date in which interest rates can change in an ARM

Question 11

rate adjustment period

Answer 11

-the amount of time in between rate adjustment dates

Question 12

periodic cap/periodic rate cap

Answer 12

-limits how much the rate can change at any one time

Question 13

biweekly mortgage

Answer 13

-requires that one-half of the mortgage payment be paid every two weeks instead of one payment each month

Question 14

home equity loan

Answer 14

-secured by the equity in the home and creates a lien on the borrower’s home, which reduces the overall equity
-not the same as a HELOC

Question 15

reverse mortgage

Answer 15

-allows a homeowner to receive a lump sum or a monthly advance on a line of credit based on the equity in their home

Question 16

purchase money mortgage (seller financing)

Answer 16

-any mortgage loan obtained from the seller when the proceeds of the loan are used to purchase real property

Question 17

package mortgage

Answer 17

-includes both real and personal property as security for the loan

Question 18

chattel mortgage

Answer 18

-uses ONLY personal property as security for a loan