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
The assumption that the index value to which the interest rate on an ARM is tied follows the same pattern as in some prior historical period. In meeting their disclosure obligations in ...
An agreement between a mortgage borrower in distress and the lender that allows the borrower to sell the house and remit the proceeds to the lender. A short sale is an alternative to ...
Fees assessed by lenders when payments are late. Late fees are usually 4% or 5% of the payment. A borrower with a 6% mortgage for 30 years who pays a 5% late charge every month raises his ...
A mortgage loan transaction in which the lender assumes responsibility for an existing mortgage. A wrap-around can be attractive to home sellers because they may be able to sell their ...
A mortgage on which the borrower gives up a share in future price appreciation in exchange for a lower interest rate and/or interest deferral. SAM's in the private market had a brief ...
A fee that some lenders charge to accept an application. It may or may not cover other costs such as a property appraisal or credit report, and it may or may not be refundable if the lender ...
The amount the borrower promises to repay, as set forth in the loan contract. The loan amount may exceed the original amount requested by the borrower if he or she elects to include ...
The definition of an assumable mortgage is what happens when a buyer assumes or takes over a mortgage that the seller contracted. This is a type of financial arrangement that passes an ...
A reduction in the mortgage payment made by a homebuyer in the early years of the loan in exchange for an upfront cash deposit provided by the buyer, the seller, or both. How Temporary ...
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