Homebuying terms you should know - B

A new month means five new housing vocabulary! 

Balloon Mortgage: A balloon mortgage is a loan that features consistent payment amounts with a large payoff, known as a balloon payment, due at the end of the loan.

The payments for balloon mortgages are typically calculated as if they were 30-year loans. For a $150,000 loan at 5 percent interest, the monthly payment is about $805 per month. If that loan is structured as a balloon mortgage with a 10-year term, the borrower still pays $805 per month for 10 years. At the end of 10 years, the borrower must come up with almost $123,000 to pay off the loan, or refinance it.

Bank Secrecy Act: Passed in 1970, the Bank Secrecy Act (BSA) requires U.S. financial institutions to work cooperatively with the government to prevent money laundering. Also known as the Currency and Foreign Transactions Act, the BSA was designed to keep banking institutions from acting as unknown intermediaries in illegal financial transactions.

The BSA is enforced by the Financial Crimes Enforcement Network (FinCEN). In January 2017, FinCEN reported that they assessed $184 million in penalties to Western Union Financial Services for past violations of anti-money laundering rules, in a coordinated effort with the Department of Justice and the Federal Trade Commission.

In 2012, HSBC Bank paid $1.9 billion for violations in its failure to prevent money laundering by drug traffickers, and in 2014 JP Morgan paid $2.6 billion in fines for failing to notify authorities about suspicions of fraud at Bernie Madoff’s fund.

Beta: Beta is the measure of the risk or volatility of a portfolio or investment compared with the market as a whole. Beta is used in the Capital Asset Pricing Model (CAPM) to help calculate the expected return of an asset.

An exchange-traded fund, or ETF, with a beta of 0.65 is 35 percent less volatile than the market. Most utility stocks have a beta of less than 1. Most high-end stocks have a beta of more than 1, offering the possibility of a higher rate of return — but posing more risk.

Bitcoin: Bitcoin is a type of digital cryptocurrency. Functionally, it serves the same purpose as U.S. dollars or Japanese yen, except that it’s not tied to a central bank and isn’t regulated by a government body such as a treasury. Bitcoin transactions take place entirely online and offer a degree of anonymity to users, and they are securely recorded in a public ledger called a blockchain. Users purchase bitcoins in an exchange and have the option of “storing” them in a digital cryptocurrency wallet.

A (very) early adopter of bitcoin named Kristoffer Koch bought about $26 U.S. dollars of bitcoin in 2009, becoming the owner of 5,000 bitcoins. He stored the unique key signifying the bitcoin on an encrypted wallet and forgot about it. Years later, he started noticing that the price had risen considerably, and he spent weeks trying to remember the wallet’s password. When he was finally able to unlock his bitcoin, the 5,000 bitcoin investment was now worth $886,000, and Koch was able to buy himself an apartment in Oslo.

Blockchain: A blockchain is a digital, public ledger that records online transactions. Blockchain is the core technology for cryptocurrencies like bitcoin. A blockchain ensures the integrity of a cryptocurrency by encrypting, validating, and permanently recording transactions. A blockchain is similar to a bank’s ledger, but open and accessible to everyone who utilizes the cryptocurrency is supports.

Asgaror, lead singer of the Norwegian black metal band Heimskringla, has seen his income dwindle ever since the band’s label increased their cut. Asgaror realizes he can increase his revenue by selling to fans directly. He decides to use the blockchain not only to register his band’s grim riffs and nefarious lyrics, but also to set up a smart contract that allows users to purchase Heimskringla’s records and merch by paying a set amount of a certain cryptocurrency. Both the registration of Heimskringla’s intellectual property and every transaction to purchase goods from the band are securely and permanently recorded.

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