Housing Investment
The amount invested in a house, equal to the sale price less the loan amount. The House Investment Decision: Lenders impose the upper limit on how much a household can spend for a house. When borrowers push the limit, it becomes costly because such borrowers are viewed as more risky to the lender. Small down payments require a higher interest rate or mortgage insurance. The major component of wealth is the value of the house. This is affected by the assumed rate of price appreciation. Higher price appreciation benefits the aggressive buyer more than the cautious one. From this must be deducted the balance of the mortgage. Both the rapidity with which the loan balance is reduced and the size of the monthly mortgage payment are affected by the mortgage interest rate. Since the aggressive buyer borrows more than the cautious buyer, higher mortgage rates hurt the aggressive buyer more than the cautious buyer. We must also deduct the amount paid each month for interest, principal reduction, mortgage insurance, and the lost interest on this amount. This is affected by the assumed 'investment rate,' which is the rate the buyers could have earned if they invested this money elsewhere. Since the monthly payments are larger for the aggressive buyer, higher investment rates hurt the aggressive buyer more than the cautious buyer. On the other hand, interest is tax deductible so that higher tax rates work in the opposite direction. Buying the Next Home Before the Existing One Is Sold: Many home-buyers are dependent on the equity in their existing house to finance the new one, but the closing date on the new one comes first. The cash needed to close before the sale can be obtained through a swing loan from a bank, or a home equity loan on your current house. A home equity loan is likely to be more costly than a swing loan, although the cost will be influenced greatly by the amount of equity in the current property and on how astutely the borrower shops. Pay a higher interest rate if necessary to avoid points (an upfront charge expressed as a percent of the loan amount), other upfront fees, and prepayment penalties. On a three-month loan, a borrower can afford to pay an interest rate up to four percentage points higher to avoid paying a fee equal to 1% of the loan.
Popular Mortgage Terms
A mortgage Web site designed to provide leads to lenders. A 'lead' is a packet of information about a consumer in the market for a loan. Lenders pay for leads, and these sites are an ...
The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, ...
A transaction in which interest is not paid on interest there is no compounding. For example, if you deposit $1,000 in an account that pays 5% a year simple interest, you would receive ...
Charging unwary borrowers interest rates and/or fees that are excessive relative to what the same borrowers could have found had they shopped the market. ...
A request for a loan that includes the information about the potential borrower, the property and the requested loan that the solicited lender needs to make a decision. In a narrower sense, ...
Prices that assume a more or less standardized set of transaction characteristics that generally command the lowest prices. Generic prices are distinguished from transaction specific ...
Same as term Bridge Loan: A short-term loan, usually from a bank, that 'bridges' the period between the closing of a home purchase and the closing of a home sale. To qualify for a bridge ...
An independent contractor who offers the loan products of multiple lenders, called wholesalers. Mortgage brokers do not lend. They counsel borrowers on any problems involved in qualifying ...
The period until the last payment is due. The maturity is usually but not always the same as the period used to calculate the mortgage payment. ...
Have a question or comment?
We're here to help.