This preview shows page 1. Sign up to view the full content.
Unformatted text preview: to a one–year ARM, usually adjustable thereafter each year for the life of the loan. In general, the larger the first number (that is, the larger the fixed rate term), the higher the interest rate. For example, lenders may quote 6% interest for a 1/1, 6.5% for a 3/1, and 7% for a 5/1 ARM, with one discount point for each. OTHER AMI/CREATIVE FINANCING ALTERNATIVES
Non–traditional forms of financing can be examined in several other categories: those where the seller assists by lending, cooperating in the assumption of a loan, or other ways; those where a lender provides concessions in exchange for a future benefit; etc. JUNIOR TRUST DEED (SECONDARY TD’S)
A “junior trust deed” or a “junior lien” or secondary financing mortgage, is any trust deed or mortgage that is not a first trust deed. A junior loan is any claim subordinate to (junior to) another claim against the security; it is a claim whose priority is after the first trust deed or mortgage. When the current financial market is tight, or when a buyer does not have enough cash to cover between the sale price and the loan amount, another loan or “second” trust deed is sometimes obtained (often from the seller). Priority is established by time of recording. The risk of a junior lienholder is higher; lenders therefore usually demand a higher interest rate. The beneficiary of a junior loan should record a request for notice of default so that he or she will be protected if the borrower defaults on a prior loan. The basic protection for the lender is the borrower’s equity.
9-34 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 9: FIXED RATE MORTGAGE AND ALTERNATIVE MORTGAGE INSTRUMENTS
Private lenders are the greatest source of junior loans. A second TD holder, just like the first TD holder, can start default action if the trustor defaults on the second. If the trustor defaults on the first TD, the second TD holder can reinstate the first TD and start default ac...
View Full Document
This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10