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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.