Types of Financing
Chapter 14

Adjustable Rate Mortgage
•	Interest rate
•	Margin
•	Adjustment period
•	Interest rate cap
•	Payment cap
•	Negative amortization
•	Disclosures

Adjustable Rate Mortgage (cont)
•	Index Rate
◦	Based on some publicly available index
•	_____________________________ security
•	Six-month Treasury Bill
•	Cost of funds to thrift institutions
◦	Fed. Reserve publishes “1 year constant maturity”
•	Disclosure required
◦	Historical example & __________________ Scenario
◦	“the Consumer Handbook on ARMs”

Adjustable Rate Mortgages
Advantages
For Borrower
•	Usually __________________ interest rate than fixed rate
•	With lower rate borrower can qualify for __________________ loan
•	BUT when interest rates rise, payment rises

For Lender
•	Allows lenders to better match long term loan interest rates to short term deposits
•	__________________ rates
•	Negative amortization may occur

Other Financing
•	Equity Sharing & Shared Appreciation Mortgage
◦	Lender receives part of the equity/appreciation
•	“Rich Uncle” Loan
•	Package Mortgage
◦	Including ____________________________________ in loan
•	Blanket mortgage
◦	Loan that covers ____________________________________
•	Graduated Payment Mortgage
◦	Basing loan repayment on expected salary increases
Other Financing (cont)
•	Reverse Mortgage
◦	Lender pays borrower
•	Interim Loan & Construction Loan
◦	Builder “draws” payments as needed.  Often high risk.
•	Blended-Rate Loan
•	Equity Loan
◦	Using built up equity to take out some cash

Affordable Housing Loans
•	Underwriting standards are modified to recognize different forms of credit responsibility.
•	Prepurchase home buyer education.
•	Low down payment.
•	Usually to first time home buyer
•	Most are owner occupied
•	Different credit criteria
Asset Integrated Mortgage
•	Combines a home loan and a fixed insurance annuity. Adds a “forced savings plan” to loan”
•	Uses part of down payment to purchase an annuity which is pledged as additional collateral.
•	Allows borrower to build a nest egg BUT the after tax return is generally negative when compared to a disciplined investment plan.
Comparison of  Conventional Mortgage to AIM

(See Diagram)

Seller Financing 
(Land Contract)
•	The current owner of the property agrees to accept part of the purchase price in the form of a loan
◦	Promissory note and mortgage or deed of trust
◦	“____________________________________paper”
◦	Becomes a lender in the transaction
◦	Often by Second mortgage (or DOT)
◦	Usually require a __________________payment
◦	Note: the term “Purchase Money Mortgage” may have legal implications, be sure you consult with legal counsel before using  
Wraparound Mortgage
Financing
•	Subordination
•	Contract for Deed
•	Option
•	Rental
•	Creative
Using Equity
•	Equity mortgage
•	Cash out refi
•	Sale Leaseback
•	Reverse annuity mortgage (RAM)
Overly Creative Financing and Purchase Techniques
Investing in Mortgages
•	Mortgage loan pools 
•	Guaranteed by Ginnie Mae and Freddie Mac 
•	May be sold prior to maturity
•	Direct purchase from Mortgage Broker or from individual looking to borrow money
•	Higher yield 
•	More risk
•	Check title and appraisal

Key Terms
•	ARM
•	Affordable housing loan
•	Blanket mortgage
•	Construction loan
•	Equity sharing
•	GPM

•	Negative amortization
•	Option
•	Package mortgage
•	RAM
•	Seller financing
•	Wraparound mortgage