Mortgage Debt and Equity Factors

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Number 1. The process of gradual repayment of outstanding principal in the case of fully or partially amortizing loans; also referred to as equity build-up reflecting the net increase in the equity position relative to debt.

Correct Answer: Debt Amortization

Number 2. A term that reflects money which is provided by a third party in return for payments that provide a return on and of the funds.  This type of capital can take many forms, ranging from mezzanine financing to permanent mortgages.. In real estate, this type of capital is generally accompanied by a pledge of some underlying property as collateral.

Correct Answer: Debt Capital

Number 3. In a real estate transaction, refers to the initial equity investment that is made by a borrower; the complement between the net purchase price and the aggregate amount of mortgage loans.

Correct Answer: Downpayment

Number 4. A periodic payment or disbursement that is made during the construction period of a contract to reflect the partial completion of tasks and/or to provide a more gradual pattern of disbursements.  The timing of these payments may be scheduled or event-driven by completion of various stages.

Correct Answer: Draw

Number 5. A request for payment or disbursement of pre-commited funds to pay for goods and services that are delivered or put in place during the construction or development period. These request may be scheduled or event-driven by satisfaction of certain metrics or completion of various stages.

Correct Answer: Draw Request

Number 6. The acceptance of a sale price that is below market, usually between related parties, with the amount of the reduction recognized by the lender as part of the downpayment or equity proceeds.

Correct Answer: Gift of Equity

Number 7. An open-end mortgage on a residence that can be drawn down in a series of increments up to a certain cap or ceiling.

Correct Answer: Home Equity Line of Credit

Number 8. The difference between the outstanding principal balance of any mortgages or other liens against a house and the net market value of that house in the event it is sold.

Correct Answer: Homeowner's Equity

Number 9. The use of borrowed capital at some fixed or contractual rate which is used to finance a project without conveying ownership rights or interests including tax benefits, equity cash flows and terminal value proceeds.

Correct Answer: Leverage

Number 10. The process of providing a "return of investment" in an amortizing mortgage in which total payments include interest and principal with the ultimate result being the repayment of the entire borrowed principal plus earned interest on the outstanding balance.

Correct Answer: Loan Amortization

Number 11. The face value of a loan upon which interest payments and repayment are based; does not reflect net deductions that may be taken as part of the origination or underwriting fee or that are involved in supporting the loan decision.

Correct Answer: Loan Amount

Number 12. The remaining principal outstanding on a loan at any point in time.

Correct Answer: Loan Balance

Number 13. A mortgage arrangement whereby a lender is provided with some form of equity investment exposure, with the actual level depending on various indicators or events.

Correct Answer: Loan Participation

Number 14. A collection of mortgages that are aggregated and held in trust to be used as collateral for issuance of mortgage-backed securities or which can be transferred to another party to create a larger aggregation of mortgages; a portfolio of loans.

Correct Answer: Loan Pool

Number 15. The ceiling or maximum mortgage that will be granted under various mortgage programs.

Correct Answer: Maximum Loan Amount

Number 16. In a mortgage, the minimum equity payment that must be made by a borrower.

Correct Answer: Minimum Down Payment

Number 17. A pledge of real property as security for an obligation.

Correct Answer: Mortgage

Number 18. The amount of an outstanding mortgage at some point in time; balance changes over time for loans that have some or full amortization schedules.

Correct Answer: Mortgage Balance

Number 19. A term that is used to describe a financial arrangement in which a developer or owner receives 100% or more of the cost of an investment through third-party financing.

Correct Answer: Mortgaging Out

Number 20. The maximum cumulative increase in the outstanding principal balance of a mortgage that is accrued as a result of payment deficiencies.

Correct Answer: Negative Amortization Cap

Number 21. A financial situation in which the net operating income is not sufficient to cover mortgage payments, thus diluting the residual payments to the equity position and reducing equity returns from levels associated with unleveraged investments.

Correct Answer: Negative Leverage

Number 22. The current period principal balance outstanding at any point in time based on the present value of the unfulfilled promise to pay or the lump sum value that is due as specified in the initial mortgage document as in the case of a balloon loan or partially amortizing loan.

Correct Answer: Outstanding Loan Balance

Number 23. A covenant in a mortgage in which the mortgagee or lender agrees to provide periodic releases of a lien on the overall property to allow purchasers to obtain clean title that can be used to collateralize a mortgage.

Correct Answer: Partial Release

Number 24. An upfront, lump payment made on behalf of a borrower resulting in a permanent subsidy that reduces the payment from the amount that would otherwise be due under the loan agreement.

Correct Answer: Permanent Buydown

Number 25. The amount of an outstanding debt associated with a mortgage at any point in time.

Correct Answer: Principal Balance

Number 26. In a Reverse Mortgage, the ceiling or maximum forward commitment to which the outstanding principal balance (e.g., cumulative draws and accrued interest) can grow under the terms of the mortgage agreement.

Correct Answer: Principal Limit

Number 27. The amount of outstanding debt that is paid off or reduced through periodic or non-recurring payments.

Correct Answer: Principal Reduction

Number 28. In closing on a residential loan, the total cash that the borrower must expend to cover the down payment, fees, escrows, pro-rate expenses and cover other settlement charges.

Correct Answer: Required Cash

Number 29. The amount of funds that a seller contributes toward a buyer’s closing costs or downpayments.  These payments are made to reduce the required mortgage or equity downpayment as an incentive for the buyer to purchase the property.

Correct Answer: Seller Contribution

Number 30. The drawing down of a mortgage or financial obligation that has been committed by a lender; the periodic draws against a construction loan or line of credit.

Correct Answer: Takedown

Number 31. The outstanding principal balance on a mortgage at some point during the term of the loan or a balloon payment at the maturity of a non-fully amortizing mortgage.

Correct Answer: Unamortized Principal