Mortgage Loans

What is a Mortgage Loan?

What is a Mortgage Loan?

• A loan secured by real property

What is a Mortgage Loan?

• A loan secured by real property– Real Property: Land

What is a Mortgage Loan?

• A loan secured by real property– Real Property: Land

• Mortgage: the document which shows the property has a debt against it

What is a Mortgage Loan?

• A loan secured by real property– Real Property: Land

• Mortgage: the document which shows the property has a debt against it– The Mortgage is used to secure the debt

What is a Mortgage Loan?

• A loan secured by real property– Real Property: Land

• Mortgage: the document which shows the property has a debt against it– The Mortgage is used to secure the debt– Mortgage has become a generic term for the loan

itself

Important Terms:

Borrower:Lender:Collateral:Principal:Interest:

Important Terms:

Borrower: Someone who is receiving money in exchange for a pledge to repay it

Lender:Collateral:Principal:Interest:

Important Terms:

Borrower: Someone who is receiving money in exchange for a pledge to repay it

Lender: Someone who is providing money in exchange for a pledge of repayment

Collateral:Principal:Interest:

Important Terms:

Borrower: Someone who is receiving money in exchange for a pledge to repay it

Lender: Someone who is providing money in exchange for a pledge of repayment

Collateral: Property pledged to a lender to secure repayment of a debt

Principal:Interest:

Important Terms:

Borrower: Someone who is receiving money in exchange for a pledge to repay it

Lender: Someone who is providing money in exchange for a pledge of repayment

Collateral: Property pledged to a lender to secure repayment of a debt

Principal: The amount of money being borrowedInterest:

Important Terms:

Borrower: Someone who is receiving money in exchange for a pledge to repay it

Lender: Someone who is providing money in exchange for a pledge of repayment

Collateral: Property pledged to a lender to secure repayment of a debt

Principal: The amount of money being borrowedInterest: Money paid to a lender in excess of the

principal

What is Foreclosure?

What is Foreclosure?

Foreclosure: the lender seizing control of or repossessing the property

What is Foreclosure?

Foreclosure: the lender seizing control of or repossessing the property

Two Types of Mortgages:

Two Types of Mortgages:

• Fixed Rate Mortgage:

• Adjustable Rate Mortgage:

Two Types of Mortgages:

• Fixed Rate Mortgage: The interest rate is constant for the life of the loan

• Adjustable Rate Mortgage:

Two Types of Mortgages:

• Fixed Rate Mortgage: The interest rate is constant for the life of the loan– Therefore, the principle and interest payments

remain the same for the life of the loan.

• Adjustable Rate Mortgage:

Two Types of Mortgages:

• Fixed Rate Mortgage: The interest rate is constant for the life of the loan– Therefore, the principle and interest payments

remain the same for the life of the loan.

• Adjustable Rate Mortgage: The interest rate of the loan resets periodically during the life of the loan

Two Types of Mortgages:

• Fixed Rate Mortgage: The interest rate is constant for the life of the loan– Therefore, the principle and interest payments

remain the same for the life of the loan.

• Adjustable Rate Mortgage: The interest rate of the loan resets periodically during the life of the loan– With the changes to the interest rate, the principle

and interest payments also change

Property Values: 3 Methods for determining values

Actual Value:

Appraisal:

Estimated:

Property Values: 3 Methods for determining values

Actual Value: The sale price of a property

Appraisal:

Estimated:

Property Values: 3 Methods for determining values

Actual Value: The sale price of a property- Not usually available unless it is being

purchasedAppraisal:

Estimated:

Property Values: 3 Methods for determining values

Actual Value: The sale price of a property- Not usually available unless it is being

purchasedAppraisal: A value determined by a licensed

professionalEstimated:

Property Values: 3 Methods for determining values

Actual Value: The sale price of a property- Not usually available unless it is being

purchasedAppraisal: A value determined by a licensed

professionalEstimated: A value obtained by the lender using

an internal method

Formula for Calculating a Mortgage Payment Amount:

c = the monthly principal and interest payment amount

P = the principal balance of the loanr = the interest rate ÷ 12N = the number of principal and interest payments

Pr(1 )

(1 ) 1

N

N

rc

r

Example 1:

You obtain a $200,000 mortgage loan at a rate of 5.25%. The loan is to be repaid over a 30 year period. What is the monthly principal and interest payment amount for the loan?

Example 2:

You obtain a $375,000 mortgage loan at a rate of 6%. The loan is to be repaid over a 30 year period. What is the monthly principal and interest payment amount for the loan?

Calculating the Total Interest Paid Over the Life of the Loan:

I = cN – P

I = the total interest paid to the lenderc = the monthly principal and interest payment

amountN = the number of principal and interest

paymentsP = the initial principal balance of the loan

Example 1:

You obtain a $200,000 mortgage loan at a rate of 5.25%. The loan is to be repaid over a 30 year period. What is total interest paid over the life of the loan?

Example 2:

You obtain a $375,000 mortgage loan at a rate of 6%. The loan is to be repaid over a 30 year period. What is the total interest paid over the life of the loan?