Mortgage Loans. What is a Mortgage Loan? A loan secured by real property.

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Presentation transcript:

Mortgage Loans

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 borrowed 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 borrowed Interest: Money paid to a lender in excess of the principal

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:

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 purchased Appraisal: Estimated:

Property Values: 3 Methods for determining values Actual Value: The sale price of a property - Not usually available unless it is being purchased Appraisal: A value determined by a licensed professional Estimated:

Property Values: 3 Methods for determining values Actual Value: The sale price of a property - Not usually available unless it is being purchased Appraisal: A value determined by a licensed professional Estimated: 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 loan r = the interest rate ÷ 12 N = the number of principal and interest payments

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 lender c = the monthly principal and interest payment amount N = the number of principal and interest payments P = 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?