Prelim-Quiz-23

Open-end mortgages
used by borrowers to obtain additional funds to improve property. The
borrower "opens" the mortgage to increase the debt after the debt has
been reduced by payments over a period of time.
They work like credit cards. The borrower/card holder may use the
proceeds up to a prescribed limit. So long as the balance is paid
down, the borrower/cardholder need not reapply for additional funds
up to the prescribed limit.

Open Mortgage
an open mortgage is one that may be repaid in full at any time
without any prepayment penalty by the lender.

Blanket mortgage
covers more than one parcel or lot and are often used to finance
subdivision developments. When one parcel or lot is sold, the
borrower makes a partial payment to release it from the overall
mortgage.

Release clause
A mortgage clause that permits part of the mortgaged property to be
released from the lien; is an essential element and requirement for
the subdivider. Without it, the subdivider may be successful in
subdividing a larger parcel into many lots; however, without the
release of the lien held by the lender, the subdivider will be unable
to sell any of the lots.

Wraparound mortgages
frequently are used to refinance or finance a purchase when an
existing mortgage is to be retained. A wraparound mortgage is always
a second mortgage. The buyer gives a large mortgage to the seller
(the second recorded position), who will collect payments on the new
loan, usually at a higher interest rate, and continue to make
payments on the old loan (the first recorded position).

Graduated Payment mortgage aka pledge account mortgage

a mortgage in which the monthly payment for principal and interest
graduates by a certain percentage each year for a specific number of
years and then levels off for the remaining term of the mortgage.
There are five different versions of the plan available in the FHA-
245 program. The most popular is Plan III, in which payments increase
at the rate of 7½ percent per year for five years.
-FHA-245 program is especially attractive to persons who may be just
starting their careers and anticipate increases in their incomes and
who want to obtain a home mortgage with a lower initial monthly
installment obligation than would be available under a level payment
plan. This plan helps borrowers qualify for loans by basing repayment
schedules on salary expectations and anticipated home price
appreciation. Because FHA underwriting guidelines are based on the
first year's monthly requirement for principal and interest
amortization, persons using FHA-245 can qualify for larger loan
amounts than would ordinarily be available under other forms of
financing.
-3 unique features of this plan:
1.) The size of the individual payments is less than it would be
under a fixed-payment loan.
2.) Negative amortization occurs during the initial years.
3.) The face amount of the note is greater than the funds disbursed
at closing.

reverse annuity mortgage or reverse mortgage

allows senior citizens on fixed incomes to tap the equity buildup in
their homes without having to sell. When savings, pensions, and
Social Security are not enough income for the homeowner to live on,
this type of mortgage can be useful. The homeowner receives a monthly
check, a lump sum, a line of credit against which to draw, or a
combination of these.
-Among the better reverse mortgage plans is that backed by the
Department of Housing and Urban Development (HUD), which requires
counseling so that the borrower understands exactly what is involved.
HUD's is called a home equity conversion mortgage.

purchase money mortgage

is any loan that enables the purchase of real estate, as opposed to a
second mortgage for further borrowing or a refinance mortgage that is
used to pay off the original one. It's for the situation in which a
seller lends the buyer money to complete the purchase. The seller
"takes back financing" and acts as the lender. A purchase-money
mortgage may cover a portion of the purchase price or may be a first
mortgage to finance the entire price.
(A mortgage issued to the borrower by the seller of the home as part
of the purchase transaction. This is usually done in situations where
the buyer cannot qualify for a mortgage through traditional lending
channels. This is also known as seller/owner financing. A purchase-
money mortgage might be offered by the seller as incentive to
purchase a property. This can be used in situations where the buyer
is assuming the seller's mortgage, and the difference between the
balance on the assumed mortgage and the sales price of the property
is made up with seller financing.)