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Questions and Answers
What does a mortgage mean?
What does a mortgage mean?
Loaning money from the lender by pledging a material asset as security.
Which of the following is a type of loan related to pledging gold?
Which of the following is a type of loan related to pledging gold?
What is the term used for a loan given by a bank for purchasing a home?
What is the term used for a loan given by a bank for purchasing a home?
What are the three main transaction types related to mortgages?
What are the three main transaction types related to mortgages?
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What happens during a refinance transaction?
What happens during a refinance transaction?
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What is the most common type of refinance?
What is the most common type of refinance?
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In a Rate & Term Refinance, borrowers can withdraw cash beyond a certain limit.
In a Rate & Term Refinance, borrowers can withdraw cash beyond a certain limit.
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What is a Cash-Out Refinance?
What is a Cash-Out Refinance?
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Who are the parties involved in a mortgage transaction?
Who are the parties involved in a mortgage transaction?
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What is a Mortgage Broker?
What is a Mortgage Broker?
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What role does a Lender play in a mortgage transaction?
What role does a Lender play in a mortgage transaction?
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Study Notes
Definition of Mortgage
- Mortgage is a loan secured by collateral, typically a material asset.
- Different types of secured loans include Gold Loans (collateral: gold), Vehicle Loans (collateral: vehicles), and Home Loans (collateral: property).
Types of Mortgage Transactions
- Three main transaction types:
- Purchase Transactions
- Refinance Transactions
- Construction to Permanent Loans
Purchase Transactions
- A bank loan for buying a home.
- Example: A buyer named Raji wants a house priced at 100,000butonlyrequestsan100,000 but only requests an 100,000butonlyrequestsan80,000 loan from HSBC Bank after credit evaluation.
Refinance Transactions
- Involves replacing an existing mortgage with a new one.
- The new mortgage pays off the old mortgage, leading to new monthly payments.
Types of Refinance
- Rate & Term Refinance:
- Most common type, replacing an old mortgage with a new one at a different rate and terms without cash out (limited to $2,000 or 2% of loan amount).
- Cash-Out Refinance:
- Allows borrowing more than the current loan balance, providing cash to the borrower.
- Example: Raji refinances for 80,000,receiving80,000, receiving 80,000,receiving20,000 after paying off the existing $60,000 debt.
Parties Involved in a Mortgage Transaction
- Four primary stakeholders in a purchase transaction:
- Borrower: Pledges property as collateral for funds.
- Mortgage Broker: Acts as a third-party intermediary connecting borrowers with multiple lenders for better rate and terms. Brokers typically earn a commission.
- Seller: The property owner selling to the buyer.
- Lender: A financial institution providing loans under specific conditions, usually involving credit assessments and collateral considerations.
Additional Key Points
- A mortgage transaction involves evaluating the borrower's creditworthiness and financial status.
- Equity in a property is crucial for understanding refinancing options.
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Description
This quiz explores the concept of mortgages, detailing different types of loans such as gold, vehicle, and home loans. It provides examples of how collateral is used in securing loans. Test your knowledge about the terms and practices surrounding mortgages.
