Podcast
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?
- Personal Loan
- Gold Loan (correct)
- Home Loan
- Vehicle Loan
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?
- Construction Loan
- Purchase Transaction
- Refinance Loan
- Home Loan (correct)
What are the three main transaction types related to mortgages?
What are the three main transaction types related to mortgages?
What happens during a refinance transaction?
What happens during a refinance transaction?
What is the most common type of refinance?
What is the most common type of refinance?
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.
What is a Cash-Out Refinance?
What is a Cash-Out Refinance?
Who are the parties involved in a mortgage transaction?
Who are the parties involved in a mortgage transaction?
What is a Mortgage Broker?
What is a Mortgage Broker?
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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