REAL ESTATE GLOSSARY
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balloon mortgage
A mortgage loan that requires the remaining principal
balance be paid at a specific point in time. For example, a
loan may be amortized as if it would be paid over a thirty
year period, but requires that at the end of the tenth year
the entire remaining balance must be paid.
balloon payment
The final lump sum payment that is due at the termination of
a balloon mortgage. bankruptcy
By filing in federal bankruptcy court, an individual or
individuals can restructure or relieve themselves of debts
and liabilities. Bankruptcies are of various types, but the
most common for an individual seem to be a "Chapter 7 No
Asset" bankruptcy which relieves the borrower of most types
of debts. A borrower cannot usually qualify for an "A" paper
loan for a period of two years after the bankruptcy has been
discharged and requires the re-establishment of an ability
to repay debt.
bill of sale
A written document that transfers title to personal
property. For example, when selling an automobile to acquire
funds which will be used as a source of down payment or for
closing costs, the lender will usually require the bill of
sale (in addition to other items) to help document this
source of funds.
biweekly mortgage
A mortgage in which you make payments every two weeks
instead of once a month. The basic result is that instead of
making twelve monthly payments during the year, you make
thirteen. The extra payment reduces the principal,
substantially reducing the time it takes to pay off a thirty
year mortgage. Note: there are independent companies that
encourage you to set up bi-weekly payment schedules with
them on your thirty year mortgage. They charge a set-up fee
and a transfer fee for every payment. Your funds are
deposited into a trust account from which your monthly
payment is then made, and the excess funds then remain in
the trust account until enough has accrued to make the
additional payment which will then be paid to reduce your
principle. You could save money by doing the same thing
yourself, plus you have to have faith that once you transfer
money to them that they will actually transfer your funds to
your lender.
bond market
Usually refers to the daily buying and selling of thirty
year treasury bonds. Lenders follow this market intensely
because as the yields of bonds go up and down, fixed rate
mortgages do approximately the same thing. The same factors
that affect the Treasury Bond market also affect mortgage
rates at the same time. That is why rates change daily, and
in a volatile market can and do change during the day as
well. bridge loan
Not used much anymore, bridge loans are obtained by those
who have not yet sold their previous property, but must
close on a purchase property. The bridge loan becomes the
source of their funds for the down payment. One reason for
their fall from favor is that there are more and more second
mortgage lenders now that will lend at a high loan to value.
In addition, sellers often prefer to accept offers from
buyers who have already sold their property.
broker
Broker has several meanings in different situations. Most
Realtors are "agents" who work under a "broker." Some agents
are brokers as well, either working form themselves or under
another broker. In the mortgage industry, broker usually
refers to a company or individual that does not lend the
money for the loans themselves, but broker loans to larger
lenders or investors. (See the Home Loan Library that
discusses the different types of lenders). As a normal
definition, a broker is anyone who acts as an agent,
bringing two parties together for any type of transaction
and earns a fee for doing so.
buydown
Usually refers to a fixed rate mortgage where the interest
rate is "bought down" for a temporary period, usually one to
three years. After that time and for the remainder of the
term, the borrower's payment is calculated at the note rate.
In order to buy down the initial rate for the temporary
payment, a lump sum is paid and held in an account used to
supplement the borrower's monthly payment. These funds
usually come from the seller (or some other source) as a
financial incentive to induce someone to buy their property.
A "lender funded buydown" is when the lender pays the
initial lump sum. They can accomplish this because the note
rate on the loan (after the buydown adjustments) will be
higher than the current market rate. One reason for doing
this is because the borrower may get to "qualify" at the
start rate and can qualify for a higher loan amount. Another
reason is that a borrower may expect his earnings to go up
substantially in the near future, but wants a lower payment
right now.
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