Chapter 11

________________ Lending Practices

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o Term loan – interest payments only until due.o Amortized loan – regular equal payments for

life of loan including both principal & interest.o Balloon loan – any loan that has a final payment

larger than any of the previous.o Partially amortized loan – series of amortized

payments with a balloon payment at maturity.

Loans

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Repaying a 6-year, $1,000 Loan

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9% Interest per Year on the Loan

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Balance Owed Each Year of the Loan

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Amortization Table: Monthly Payment per $1,000 of Loan

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Balance Owing on a $1,000 Amortized Loan

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• The relationship between the amount the lender is willing to loan and the market value of the property.

• Market value = $100,000 Loan = $80,000What is the loan-to-value ratio?

80%

Loan-to-Value

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Equity – the difference between the value of the property and outstanding debt.

Points – one percent of the loan amount. Origination fee – fee lender charges for

making loan usually stated in terms of a percentage of loan amount.

Discount points – lender’s charge to raise the return on the loan usually stated as a percentage of the loan amount.

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Insures loansUFMIP

Anyone qualifiedRate negotiable

Points3-5% down

97-95% L-T-V

Guarantees loansFunding fee

Veterans onlyRate negotiable

PointsNo down payment

100% L-T-V

FHA VA

VA / FHA Comparison

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• Owner occupied• 1-4 family dwellings• Refinancing allowed• Assumption allowed•(with approval)

VA / FHA Similarities

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VA◦ http://www.homeloans.va.gov/

FHA◦ https://entp.hud.gov/idapp/html/hicostlook.cfm

Conv◦ http://www.fanniemae.com/aboutfm/loanlimits.jhtml?p=About+Fannie+Mae&s=L

oan+Limits

Loan Limits Info

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Private Mortgage Insurance PMI Insures lenders against losses

Mortgage Insurance

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Amortized loan Balloon loan Conventional loans Equity FHA Impound account Loan origination

fee

Loan-to-value ratio Maturity PITI PMI Point Principal UFMIP VA

Key Terms