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					Mortgages


Chapter 7
Mortgage Lending


Lesson 7.1
What is a Mortgage

 In 2003 new mortgages exceeded $3
  Trillion.
 Mortgage – a note, usually long term,
  secured by real property.
 The mortgage places a lien on the
  property that is not released until the
  debt is paid.
What is a Mortgage

 If the mortgage is not paid the creditor
  seeks a court-ordered sale of the
  property called a foreclosure, and the
  debt is paid from those funds
Types of Mortgages

 Mortgages fall into one of three general
  categories:
     Fixed rate mortgages
     Adjustable rate mortgages
     Other forms of financing
Types of Mortgages

 Fixed Rate Mortgage – or conventional
  mortgages, are loans with a fixed
  interest rate for the life of the loan.
 Payments and terms are set for the life
  of the loan
 Most common terms are 30 and 15 year
  loans, but others are avaliable
Types of Mortgages

 If the interest rates rise your rate will not
  follow
 For banks it is a reliable source of
  income
 Balloon Mortgage – the interest rate and
  payment stay fixed, however at some
  point the entire balance is due in one
  single payment
Types of Mortgages

 Balloon Mortgages are good for people
  who might not otherwise be able to get
  a mortgage, however they must
  refinance before the balloon period is up
  or they stand to loose their house
Types of Mortgages

 Adjustable Rate Mortgages (ARM) –
  mortgages with rates that change over
  the life of the loan
 Rates will stay fixed for a short time then
  be adjusted up to a level equal with the
  market.
 If you plan on staying in a house for only
  a few years ARM’s are the way to go.
Other Forms of Financing

 Buy-down mortgage – borrower buys
  down or prepays part of the interest in
  order to get a lower rate.
 Borrower pays points to the lender in
  exchange for lower rates
 Point – a value equal to 1 percent of the
  loan. i.e. 2 points on a $200,000 loan
  = 2% of $200,000 or $4,000
Other Forms of Financing

 Shared Appreciation Mortgage (SAM) –
 lower interest rates if the borrower agree
 to share with the lender some part of the
 amount the house appreciates often
 50%
Other Forms of Financing

 Refinancing – starting over with a new
  loan, using part or all of the loan funds to
  pay off the old mortgage
Other Forms of Financing

 Home Equity Loans (HEL) – lending on
  the equity or the difference in what a
  home is worth vs. what the homeowner
  owes on the first mortgage.
 Two forms of HEL
     Simple loan – single disbursement of the
      money
     Line of Credit – borrow and pay down the
      loan over a period of time usually 10 years
Other Forms of Financing

 Reverse Mortgage – not a means to
  purchase a home usually limited to
  people 62 and older.
 Homeowner receives a sum from the
  lender, secured by the value of the home
  (equity) and does not pay the loan back
  until they sell the house.
 Could receive funds in lump sum, line of
  credit or monthly payment from bank.

				
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