Definition
The Original Face Value is the principal amount owed on a mortgage on the day it closes. This value represents the initial amount loaned from the lender to the borrower before any payments, interest, or other alterations take place.
Examples
- Example 1: When the Browns took out the mortgage to buy their home, it was for the amount of $125,000. Today, five years later, they owe less than $100,000, but the original face value of the loan is $125,000.
- Example 2: Jane secured a mortgage for $250,000 to purchase her first home. Despite 10 years of monthly payments, which have reduced her remaining balance to $175,000, the original face value of the mortgage remains $250,000.
Frequently Asked Questions (FAQs)
1. What is the importance of knowing the original face value of a mortgage?
Understanding the original face value aids in recognizing the initial amount borrowed, which is essential for historical reference, financial planning, and tracking the repayment progress over time.
2. Does the original face value change over time?
No, the original face value remains constant throughout the life of the mortgage. It is the amount initially borrowed, irrespective of subsequent payments or interest accruals.
3. How does the original face value differ from the outstanding balance?
The original face value is the starting loan amount at the time of closing, while the outstanding balance is the current amount owed after accounting for repayments and interest.
4. Can the original face value affect my future loan applications?
Lenders may examine your original face value along with your current balance and payment history to assess your financial responsibility and borrowing capacity for future loans.
5. Is the original face value used in calculating mortgage interest?
Typically, interest calculations begin with the original face value, but they are usually based on the decreasing balance over time as payments are made.
- Mortgage Principal: The amount borrowed from the lender that must be repaid, excluding interest.
- Loan Origination Fee: The costs associated with the establishing of the mortgage.
- Amortization: The process of gradually repaying a loan through scheduled payments that include both principal and interest.
- Outstanding Balance: The amount still owed on the mortgage at any given time.
- Closing Costs: The fees and charges related to finalizing the mortgage.
Online Resources
References
- “Mortgage Concepts and Principles” by Joan Storms.
- “Real Estate Financing and Investment Manual” by Jack Cummings.
- “Understanding Mortgages” by David Reed.
Suggested Books for Further Studies
- “Mortgage Management for Dummies” by Eric Tyson and Robert S. Griswold.
- “Home Buying for Dummies” by Eric Tyson and Ray Brown.
- “Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan” by David Reed.
Real Estate Basics: Original Face Value Fundamentals Quiz
### What does the term "original face value" refer to in a mortgage context?
- [x] The principal amount owed at the mortgage origination.
- [ ] The remaining balance on the mortgage.
- [ ] The sum total of all payments made.
- [ ] The interest accrued over the life of the loan.
> **Explanation:** The original face value refers to the principal amount owed on a mortgage at the time it closes.
### Can the original face value of a mortgage change over time?
- [ ] Yes, it changes with each monthly payment.
- [x] No, it remains constant throughout the loan term.
- [ ] It depends on the type of mortgage.
- [ ] Only if the loan is refinanced.
> **Explanation:** The original face value remains constant throughout the life of the loan. It is the amount borrowed initially.
### Why is the original face value significant?
- [x] It is essential for historical reference and financial planning.
- [ ] It determines the property's market value.
- [ ] It affects monthly utility payments.
- [ ] It is used to compute property taxes.
> **Explanation:** Understanding the original face value is vital for historical reference, financial planning, and tracking repayment progress.
### How is the original face value different from the outstanding balance?
- [ ] They are the same.
- [ ] Both change over time.
- [x] The original face value is the initial loan amount, whereas the outstanding balance decreases as payments are made.
- [ ] Original face value considers interest, but outstanding balance does not.
> **Explanation:** The original face value is the initial amount borrowed, while the outstanding balance is the current amount owed after accounting for repayments and interest.
### Who typically needs to know the original face value of a mortgage?
- [ ] Only the homeowner.
- [ ] Only the lender.
- [x] Both the homeowner and the lender.
- [ ] Only financial advisors.
> **Explanation:** Both the homeowner and lender should be aware of the original face value to track loan repayments and for financial assessment.
### When is the original face value of a mortgage determined?
- [ ] During property appraisal.
- [ ] Annually on the mortgage anniversary.
- [x] At the time the mortgage closes.
- [ ] When monthly payments begin.
> **Explanation:** The original face value is determined at the loan origination or closing date.
### What can knowing the original face value help with in financial planning?
- [x] Understanding initial loan size for future financial decisions.
- [ ] Estimating annual tax liabilities.
- [ ] Calculating property insurance.
- [ ] Forecasting long-term utility costs.
> **Explanation:** Knowledge of the original face value helps understand the initial size of the loan, which is critical for making future financial decisions.
### Does the original face value include the interest that will be paid over the loan term?
- [ ] Yes, it includes all expected interest payments.
- [x] No, it is strictly the principal amount borrowed.
- [ ] Only if specified in the loan agreement.
- [ ] It varies by lender's agreement.
> **Explanation:** The original face value is the principal amount borrowed, excluding any interest that may be paid over the loan term.
### How does the original face value influence mortgage interest calculations?
- [x] Interest calculations use it as the starting reference but typically base ongoing interest on the outstanding balance.
- [ ] It does not influence interest calculations.
- [ ] Interest is calculated only on the original face value throughout the loan term.
- [ ] Original face value and interest calculations are not related.
> **Explanation:** While interest calculations start with the original face value, they are usually based on the decreasing balance as payments are made over time.
### What remains the same throughout the life of the mortgage?
- [ ] Outstanding balance.
- [ ] Monthly payment amount.
- [x] Original face value.
- [ ] Property valuation.
> **Explanation:** The original face value remains constant throughout the life of the mortgage.
