Mortgage Types

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Number 1. The acronym for a loan that covers Acquisition, Development and Construction costs.

Correct Answer: Acquisition, Development and Construction (ADC) Loan

Number 2. A mortgage with an interest rate that varies over the term of the loan according to changes in some specified index.

Correct Answer: Adjustable Rate Mortgage (ARM)

Number 3. Loan programs offered by governmental or quasi-governmental agencies (e.g., FNMA, Freddie Mac), or by local jurisdictions or housing authorities that offer lower rate (i.e., affordable) mortgages for households meeting certain income tests that make them eligible for mortgage assistance.

Correct Answer: Affordable Housing Loans

Number 4. A catch-all category that enfolds all non-traditional, fully-amortizing mortgages; includes variable rate mortgages, adjustable rate mortgages, interest-only mortgage, balloon mortgages, negative amortization mortgages and other hybrid mortgages.

Correct Answer: Alternative Mortgages

Number 5. A type of mortgage which has a specified maturity or repayment date that precedes the term over which the loan is amortized. In effect, the amortization period remains long (e.g., 20 -30 years) to reduce monthly payments. However, to ensure the loan is not held long-term and to allow the lender to recast the loan at then-current rates, the loan is due in full at the date of the balloon.

Correct Answer: Balloon Mortgage

Number 6. A short-term loan that requires repayment at a given time or event; may or may not involve amortization of the underlying principal.

Correct Answer: Bullet Loan

Number 7. A mortgage loan arrangement in which a lump sum is paid to the lender up front, thus reducing the initial or outstanding principal balance.

Correct Answer: Buydown Mortgage

Number 8. A mortgage in which a borrower agrees to pay a higher interest rate in return for reduced up-front fees or costs to reduce equity requirements at closing.

Correct Answer: Buy-up Mortgage

Number 9. A typical mortgage arrangement in which a borrower pays a fixed amount per period which is allocated between principal and interest. In general, refers to fixed interest rate loans, although may be used in variable rate loan arrangements where the payments are fixed, but the outstanding balance is adjusted to account for increases or decreases in some index.

Correct Answer: Constant Payment Mortgage (CPM)

Number 10. A short-term, high risk loan that is used to fund development, redevelopment or other construction activity; construction loans are typically higher risk and full recourse, since there is no income-generating potential if a project is not completed and the lender must rely on limited collateral.

Correct Answer: Construction Loan

Number 11. A type of adjustable rate mortgage (ARM) in which the lender can unilaterally change the interest rate independent of some external index or barometer.

Correct Answer: Discretionary ARM

Number 12. A hybrid type of mortgage in which the interest rate is determined by changes in some pre-specified index, and the payment rate is pegged to an earnings index. Differences in the two indices affect the outstanding principal balance, leading to periods of negative amortization and accelerated amortization compared to a traditional, fully amortizing mortgage.

Correct Answer: Dual Index Mortgage

Number 13. A type of mortgage in which the borrower pays a fixed rate over time, regardless of changes in interest rates. Typically associated with fully amortizing loans with a long amortization period.

Correct Answer: Fixed Rate Mortgage (FRM)

Number 14. A type of mortgage in which the payments change over time to reflect anticipated increases in the ability to pay of the borrower; an umbrella term that covers several types of mortgages including Graduated Payment Mortgages (GPM), Variable Payment Plans, and Pledged-Account Mortgages.

Correct Answer: Flexible Payment Mortgage

Number 15. A mortgage with an interest rate that fluctuates along with changes in some underlying index. The spread between the index and floating rate is typically fixed, although it may be pegged to market levels as well.

Correct Answer: Floating Rate Mortgage

Number 16. An alternative to a fixed rate mortgage in which the initial payments are reduced to a level that is below what it would take to amortize the mortgage over the term of the loan resulting in an increasing loan balance.

Correct Answer: Graduated Payment Mortgage (GPM)

Number 17. A form of mortgage in which the repayment of principal is accelerated by increasing payments on a fixed rate debt, with the balance of the payments applied directly to principal reduction, thus accelerating equity build-up.

Correct Answer: Growing Equity Mortgage

Number 18. A reverse mortgage program administered by FHA in which an eligible borrower --based on age or other qualifying criteria-- receives a forward commitment for a mortgage that will build up over time.   In essence, the borrower receives a fixed payment over time which grows as a claim against the underlying property which is repaid from sales proceeds upon maturity or death.

Correct Answer: Home Equity Conversion Mortgage (HECM)

Number 19. Adjustable Rate Mortgages in which an interest rate is automatically adjusted to some predetermined index at some predetermined time.

Correct Answer: Indexed ARMs

Number 20. A mortgage arrangement in which a borrower makes no payments toward principal amortization. The periodic payments are set at a level to cover interest charges on the outstanding balance.

Correct Answer: Interest-only Mortgage

Number 21. A type of fully-amortizing mortgage in which the fixed, periodic payments are set at such a rate as to provide a return on and of capital, with interest earned on outstanding capital and repayment or amortization of capital in amounts that are sufficient to retire the outstanding debt at the end of the amortization period.

Correct Answer: Level-payment Mortgage

Number 22. A type of mortgage agreement in which the mortgagee shares in equity ownership benefits as determined by some specified schedule tied to productivity or performance of the underlying asset.

Correct Answer: Participating Mortgage

Number 23. A package financing arrangement in which two separate mortgages are offered to a borrower; the base or bulk of the mortgage may be conforming or in compliance with typical loan-to-value ratios, while the supplemental or second mortgage may bring the total loan ratio above normal limits; the first mortgage can then be transferred with normal pricing.

Correct Answer: Piggyback Mortgage

Number 24. A loan arrangement in which part of the acquisition or transfer price is taken in the form of a mortgage agreement with the seller or a third party serving as the mortgagee or lender; used to reduce the equity or third party debt requirements for a particular property.

Correct Answer: Purchase Money Mortgage

Number 25. A mortgage in which the borrower receives a periodic draw against the value of the property in the form of a series of payments from the lender as opposed to a lump sum, up front advance. These draws are not repaid on a periodic basis, but are compounded forward to a growing principal balance.

Correct Answer: Reverse Annuity Mortgage (RAM)

Number 26. A mortgage in which the borrower receives a periodic draw against the value of the property in the form of a series of payments from the lender as opposed to a lump sum, up front advance. These draws are not repaid on a periodic basis, but are compounded forward to a growing principal balance.

Correct Answer: Reverse Mortgage

Number 27. A type of mortgage in which a borrower pledges to split the appreciation in a property with the lender in return for a below market interest rate or for waiver of some other traditional lending requirements; amount of equity reallocation is a function of changing values as determined by an ultimate sale or by some agreed-upon mortgage process.

Correct Answer: Shared Appreciation Mortgage (SAM)

Number 28. An adjustable rate mortgage in which the borrower pays two different interest rates over two specified periods. The initial rate will be fixed, while the subsequent rate may be pre-specified or may float along with some index.

Correct Answer: Two-step Mortgage

Number 29. A floating rate loan in which the interest payment goes up or down at specified times depending on the value of some index or other benchmark.

Correct Answer: Variable Interest Rate

Number 30. A type of mortgage in which the interest rate is periodically adjusted to reflect changes in some external index or benchmark; interest rate changes may trigger changes in mortgage payments or may affect the outstanding principle balance; usually combined with restrictions on maximum change per adjustment period and a cap on total change over the life of the mortgage.

Correct Answer: Variable Rate Mortgages (VRM)

Number 31. A type of mortgage arrangement in which a new loan is advanced that covers or extends over an existing loan, providing additional proceeds to a borrower; the new lender collects funds and disperses them to the underlying lender and retains the excess proceeds.

Correct Answer: Wraparound Mortgage