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Junior Loan Characteristics

In some financing plans, a junior loan is used to obtain additional project funds above and beyond those made available to the project by the first mortgage lender. Ask your first mortgage lender, whether they will permit the project to take out a junior loan. If so, enter details about the loan agreement in this section of the Template. The input fields include:

  • Amortizing Second Mortgage, which supplements the funds received from the first mortgage. In many HOME projects, HUD's financial assistance takes the form of an amortizing second mortgage. Like conventional loans, amortizing second mortgages also require regular payments of both principal and interest. Enter the amount of the amortizing second mortgage.
     
  • Amortizing Second Mortgage Source, which identifies the private or public lender that will provide the amortizing second mortgage. In some cases, the HOME Program or another Federal, State, or local program will be the amortizing second mortgage source.
     
  • Points, which are up-front interest costs paid to the lender in exchange for a lower interest rate. Enter the percentage by which the developer plans to lower the interest rate through the payment of points on the second mortgage. Once you have completed the Financing Sources tab, the cost of points for the first and second mortgages will be shown on the Gap Analysis tab and help to determine the amount of total financing needed for the project.
     
  • Interest Rate, which is the yearly rate at which the loan accrues interest. Enter the interest rate for the second mortgage loan.
     
  • Loan Term, as used by the Template, serves as both the term and amortization period for the second mortgage. "Term" refers to the number of years the project will make principal and interest payments on the loan. "Amortization Period" refers to the time it takes to retire a debt through equal periodic payments. Many loans have terms and amortization periods of 15, 20, 25, or 30 years. Although the loan term is entered in years, the Template calculates interest assuming a series of monthly payments.

    On the Operating Pro-Forma tab, this information will be used to calculate the monthly principal and interest payments. If the property is sold before the end of the loan term, the Template assumes the property will pay off the second mortgage in the year of the project sale.

    If your amortizing second mortgage financing will involve a more complex or irregular schedule of payments, create a custom loan on the Custom Loans tab, instead, and leave all inputs related to the second mortgage at zero.
     
  • Deferred Payment Loan (1 and 2), which is a variety of second mortgage. Deferred payment loans do not amortize. Rather the principal and accrued interest are repaid at the end of an agreed period. If your project uses deferred payment financing, enter the loan amount for up to two deferred payment loans here.

    If your deferred payment financing will involve a more complex or irregular schedule of payments, create a custom loan on the Custom Loans tab, instead, and leave all inputs related to the second mortgage at zero.
     
  • Deferred Payment Loan Source (1 and 2), which identifies the private or public lender that will provide the deferred payment loans. In some cases, the HOME Program or another Federal, State, or local program will be the deferred payment loan source. Enter the source for your deferred payment loan (or loans), if applicable.
     
  • Deferred Payment Loan Interest Rate (1 and 2), which is the yearly rate at which the loan accrues interest. Some deferred payment loans have 0 percent interest. Enter the interest rate for your deferred payment loan (or loans), if applicable.
     
  • Deferred Payment Loan Year of Payout (1 and 2), which is the year that the project will repay the loan principal and any accrued interest. For some projects, this will be the year that the project is sold (entered later). Enter the year of payout for your deferred payment loan (or loans), if applicable. Note that the Template assumes that a deferred payment loan is repaid at the end of a full year and the year of payout must be a whole number.