Exam (elaborations)
R-305 Exam 2 Ch. 9 (1).
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R-305 Exam 2 Ch. 9 (1).
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R-305 Exam 2 Ch. 9Note - ANS-defines the exact terms and conditions of a loan
Index Rate - ANS-market determined interest rate, "moving part" in an ARM
LIBOR Rate - ANS-short-term loan rate that banks charge each other, serves as first step in
determining interest rates on various loans
Margin - ANS-lender's markup, determined by each individual lender
Rate Caps - ANS-limitations to the changes in an ARM, either periodic or overall caps
Teaser Rates - ANS-a temporarily reduced interest rate, typically a percentage point or two
below sum of index plus margin
Payment Caps - ANS-does not let a borrower pay more than a certain percentage in a given
time frame, enables lender to enjoy the interest rate fluctuation
Partially Amortized - ANS-make payments for a certain number of years with one large balloon
payment at the end
Nonamortizing - ANS-require interest, but not regularly scheduled principal payment prior to last
payment
Term - ANS-definitive term to maturity, home loans typically 15 and 30 years
Subprime Loans - ANS-loans to homeowners who do not qualify for standard loans, costly
prepayment penalties and locked in high interest rates
Personal Liability - ANS-a borrower assumes liability when signing a note, if borrower does not
meet terms of the note, they are in default
Exculpatory Clause - ANS-clause in the note that can release the borrower from liability for
fulfillment of the contract
Nonrecourse Loans - ANS-loans with an exculpatory clause, release borrower from personal
liability but property is still up for collateral
Demand Clause - ANS-permits a lender to demand prepayment of a loan
Mortgagor - ANS-borrower, grantor of the mortgage claim
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