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A loan or lien on a property/house that has to be paid

over a specified period of time.


The word mortgage is a Law French term meaning "dead
pledge.
Basic rule of mortgage loan: The annual maintenance
of ones property (mortgage payments, utilities and
insurance) should not exceed 30% of gross annual
income.

Fixed Rate Mortgage
The Adjustable Rate Mortgage (ARM)
Interest Only Mortgage
Biweekly Mortgage
Two Step Mortgage
Federal Housing Authority (FHA) Mortgage
Veterans Affairs Loan
Most common type of residential home loan.
The mortgage loan is repaid through fixed monthly
payments of principal and interest over a set term.
The borrowing rate stays the same over the life of the
residential mortgage loan.
The term of the home mortgage can be 10, 15, 20 or the
popular 30 year fixed rate mortgage term.
The mortgage interest is front loaded.
Ideal for those who intend to stay in their properties for a
long time.

ADVANTAGES
DISADVANTAGES
Stability
Lower payments in a low
mortgage interest rates
environment
Affordability
High payments in a high
mortgage rate environment.

Example: Using a 30 year fixed mortgage of $150,000 , if the
borrowing rate is 6.50%, the monthly payment would be $948.10.
If the mortgage interest rate is 8.50%, the mortgage monthly
payment would amount to $1,153.37. The difference in monthly
payments is $205.27.

An arm adjustable rate mortgage is a combination of a fixed rate
mortgage and a floating rate mortgage.
At the beginning of the mortgage term, the mortgage rate is
fixed for certain periods.
These periods could be for 3, 5, 7 or 10 years. After this period
expires, the mortgage interest rate becomes adjustable.
A popular ARM home loan is the 5 1 ARM Mortgage. Five denotes
that the period and the borrowing rate are initially fixed for 5
years. After the fifth year, the mortgage rate becomes
adjustable.
Conversion Options: Some ARM home loans come with options to
convert them to a fixed rate mortgage based on a pre-
determined formula, during a given time period. Example: the 1-
year treasury bill adjustable may be converted to a fixed
mortgage rate during the first five years on the adjustment date.
Meaning, you have the option to convert during the 13th, 25th,
37th, 49th and 61st months of the mortgage loan.


Index: This is the market derived interest rate which is used as a base to set future
rates of the ARM mortgage loan. Depending on the index chosen, the home
borrowing rate could be adjusted monthly, quarterly, semi-annually or annually. The
index could be pegged to the following: Treasury Bill Rates, The Prime Rate, Libor
and 6 month CD. These indexes are usually published in the newspaper.
Margin: This is the spread added to the index to determine the actual rate charged
to the mortgage borrower. Example: Index is based on One Year Treasury Bills 3%.
The margin is 2%. The mortgage rate the borrower pays is 5%. Rate = Index Rate +
Margin
Adjustment Period: This is the duration for which the mortgage interest rate is
fixed. If the adjustment period is one year, then the interest rate will remain fixed
for one year, after which time it will adjust.
Adjustment Cap: This is the maximum the interest rate can adjust either up or
down for each adjustment period. Example: The adjustment cap is 1 point. The
index based interest rates since the last adjustment period went up 1.5 points. The
most you will be paying would be 1 point due to the cap.
Lifetime Cap: The maximum mortgage interest rate charged over the duration of
the arm mortgage loan. The cap can be as high as 6%. The cap is based on the
interest rate from the first year adjustment period. The rate is 5%. The highest the
mortgage interest rate can go is 11% (Base Rate + Lifetime Cap).

The Advantages The Disadvantages
Teaser Rate: This is the starting interest rate of
the arm adjustable rate mortgage. It is usually
referred to as the teaser rate, since it is lower
than the fully indexed rate. The initial low
mortgage rate is used to attract people. An arm
mortgage is ideal for people who intend to stay
in their homes for no more than 5 to 7 years.
The benefits of an arm are realized at the
beginning.
Affordability: If current mortgage rates and
housing prices are high, this may be the only
home loan option available to you. You may
have a better chance of getting the home loan
since the lender incorporates the gross monthly
income and the monthly loan payment amount
to determine how much you qualify. The
monthly amount will be less with a lower
interest rate so you might qualify for more.
Interest rates have peaked: By going with an
adjustable rate mortgage arm at the peak of the
interest rate cycle, the successive rates will be
lower as interest rates go down. Your monthly
home mortgage payments will be lower
Complicated to understand: Unlike a
fixed rate mortgage that is simple to
understand, there are many variables
that go into calculating adjustable rate
mortgage loans.
Interest rates have bottomed out: By
going with an adjustable rate mortgage
arm at the bottom of the interest rate
cycle, successive borrowing rates will
likely go higher as interest rates go
down. Your monthly mortgage payments
will become less affordable.
Uncertainty: If you plan to be at your
property for more than 7 years, you will
be dealing with the uncertainty
associated with an ARM mortgage. After
each adjustment period, you will bet
getting new mortgage payments.



An interest only home mortgage features no payments of principal made
at the beginning of the home loan. The monthly payments consist only of
mortgage interest only. Due to the lower monthly mortgage payments,
you qualify for a bigger residential loan. An interest only home mortgage
allows you to buy more home while keeping your monthly mortgage
payments low.
Not Interest Only For The Whole Mortgage Loan Term
The interest only payments do not go on for the whole term of the home
loan mortgage. Interest only mortgage payments periods range from 1
year up to half the term of the mortgage loan. Interest only loan
mortgages are available in adjustable rate mortgage format and fixed
mortgage format.
Bigger Monthly Mortgage Payments
After the interest only payment is over, you will begin making payments
on your mortgage principal. Your monthly mortgage payment will go up
considerably. For example, you took out a 15/30 year interest only
mortgage. After the 15th year, the principal balance will be amortized
over 15 years. With a $175,000 home loan with a mortgage borrowing
rate of 6.50%, the interest only monthly payment is $947.92. When the
principal payments kick in after the 15th year, the mortgage monthly
payment jumps to $1,524.44.

ADVANTAGES DISADVANTAGES

Lower mortgage
payments: The lower monthly
mortgage payments let you
purchase a home where a fixed
mortgage loan would not. You
get to jump on the housing
bandwagon
Free up cash to invest the
money elsewhere: Instead of
using the cash to pay down
your mortgage principal, you
can invest in other vehicles
such as stocks and mutual
funds to generate a superior
return.


Income Risks: There are no
assurances that your income will
rise fast enough to cover the higher
monthly mortgage payments.
Property Risks: Instead of the
property rising fast enough to pay
off your interest only home
mortgage, it could stay at current
levels or even drop. As a result,
you might require another loan just
settle the interest only mortgage
loans.
No guarantee of getting superior
returns in other investments: If
you used the money to generate
returns in investments such as
equities and mutual funds, there is
no guarantee youll make money.


Mortgage payments are made every two weeks. The
amount paid is half of what your monthly mortgage
payment would be. On an annualized basis, there are two
extra payments in a year. You will be making 26 biweekly
mortgage payments instead of 24 payments.
Save Thousands On Mortgage Interest And Pay Off Your
Mortgage Quicker : A bi weekly mortgage program has you
paying down your principal mortgage earlier. As a result,
youll save significant amounts in mortgage interest and
pay off your home mortgage years earlier.
Example: 30 year fixed mortgage $175,000 Interest Rate:
6.75%
By opting for a bi weekly mortgage payment plan for this
mortgage, you will be saving $54,257.52 in mortgage
interest. Your mortgage will be paid off 5 years 9 months
earlier.



A two step mortgage is essentially a 30 year mortgage
with special features: Convertible or non-convertible.
These mortgage loans are also known as 5/25s and
7/23s. The 5/25s has a fixed interest rate for the first
five years and then switches to either a 25 year fixed
mortgage rate or a 1 year adjustable mortgage rate.
The 7/23 has a fixed interest rate for the first seven
years and then converts to a 23 year fixed or a 1 year
adjustable. The starting home loan rate is lower than
a 30-year fixed. However, it is higher than a 1-year
ARM mortgage. This type of residential mortgage is
less risky than a mortgage ARM initially since the
adjustment interval is longer.
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A FHA mortgage is a residential loan insured by the FHA
that is part of the U.S. Department of Housing and Urban
Development (HUD). FHA loans have lower mortgage down
payment requirements and were easier to qualify for than
conventional loans. The goal of the FHA is to make housing
affordable and stimulate demand.

The best feature of an FHA loan is the low downpayment.
The down payment mortgage can be as low as 2% but you
will be required to pay pmi private mortgage insurance.
FHA loans are also assumable so you can take over from
the property seller if you qualify. This could save you
significant amounts of money and hassles. The FHA
mortgage loan amounts are determined by the median
prices of different cities within a specific region.
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The U.S. Department of Veterans Affairs guarantees mortgage loans for
veterans and service persons. It does not underwrite the residential
loans. The guaranty allows veterans to get home mortgage loans with
good borrowing terms, usually with little or no down payment.
To be eligible for the VA loan, you must have served 180 active days
service since September 1940. If you enlisted after September 7, 1980
you need to have two years of service. You do need to get a certificate of
eligibility from the Department of Veterans affairs as proof of service.
Veterans are not permitted to pay points to the mortgage lender on these
types of mortgage loans. You can prepay a VA loan without penalty and
the residential loan is assumable, meaning the property buyer can take
over the mortgage if the property is sold. This feature can save a buyer
significant amounts of money in mortgage interest payments. The buyer
still needs to meet the requirements of the current mortgage banker. The
homebuyer takes over payment on the existing mortgage and pays the
difference between the mortgage balance and the selling price. You
should always verify first whether the mortgage home loan you are
securing is assumable.


Monthly payment formula: based on
the annuity formula,

where.,
c- monthly payment
r - the monthly interest rate, expressed as a decimal, not a percentage
(i.e., divide the quoted yearly percentage rate by 100 and then by 12 to
obtain the monthly interest rate),
N - the number of monthly payments, called the loan's term, and
P - the amount borrowed, known as the loan's principal.
Total Interest Paid Formula
The total amount of interest I that will be
paid over the lifetime of the loan is the
difference of the total payment amount (cN)
and the loan principal (P):
I = cN P
where c is the fixed monthly payment, N is
the number of payments that will be made,
and P is the principal balance left on the
loan

Mortgage calculators are used to help a current or potential real
estate owner determine how much they can afford to borrow on
a piece of real estate. Mortgage calculators can also be used to
compare the costs, interest rates, payment schedules, or help
determine the change in the length of the mortgage loan by
making added principal payments.
A mortgage calculator is an automated tool that enables the user
to quickly determine the financial implications of changes in one
or more variables in a mortgage financing arrangement. The
major variables include loan principal balance, periodic interest
rate compound interest, number of payments per year, total
number of payments and the regular payment amount.
Mortgage calculation capabilities can be found on financial
handheld calculators such as the HP-12C or Texas Instruments TI
BA II Plus.
There are also multiple free online free mortgage calculators,
and software programs offering financial and mortgage
calculations.

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