Chapter 11 ________________ Lending Practices © 2010 by Cengage Learning

© 2010 Cengage Learning 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

© 2010 Cengage Learning Repaying a 6-year, $1,000 Loan

© 2010 by Cengage Learning 9% Interest per Year on the Loan

© 2010 by Cengage Learning Balance Owed Each Year of the Loan

© 2010 by Cengage Learning Amortization Table: Monthly Payment per $1,000 of Loan

© 2010 by Cengage Learning Balance Owing on a $1,000 Amortized Loan

© 2010 Cengage Learning The relationship between the amount the lender is willing to loan and the market value of the property. Market value = $100,000 Loan = $80,000 What is the loan-to-value ratio? 80% Loan-to-Value

© 2010 Cengage Learning  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.

© 2010 Cengage Learning Insures loans UFMIP Anyone qualified Rate negotiable Points 3-5% down 97-95% L-T-V Guarantees loans Funding fee Veterans only Rate negotiable Points No down payment 100% L-T-V FHA VA VA / FHA Comparison

© 2010 Cengage Learning Owner occupied 1-4 family dwellings Refinancing allowed Assumption allowed (with approval) VA / FHA Similarities

© 2010 Cengage Learning  VA ◦  FHA ◦  Conv ◦ n+Limits n+Limits Loan Limits Info

© 2010 Cengage Learning  Private Mortgage Insurance  PMI  Insures lenders against losses Mortgage Insurance

© 2010 Cengage Learning  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