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
Making a payment larger than the fully amortizing payment as a way of retiring the loan before term. Making Extra Payments as an Investment: Suppose you add $100 to the scheduled ...
Also called variable or flexible rate mortgage, an adjustable rate mortgage (ARM) is a mortgage where the interest rate is not constant, but changes over time by the mortgage lender. ...
All the combinations of interest rate and points that are offered on a particular loan program. On an ARM, rates and points may also vary with the margin and interest rate maximum. ...
The definition of a reverse mortgage is important for homeowners 62 and older who want to supplement their retirement income. What exactly is a reverse mortgage? Some say that it is the ...
Interest from the day of closing to the first day of the following month. To simplify the task of loan administration, the accounting for all home loans begins as if the loan was closed ...
A particular combination of loan, borrower, property, and transaction characteristics that lenders use in setting prices and underwriting requirements. ...
A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes a note evidencing the debt, and a mortgage evidencing the lien on the property. ...
Someone recommended you should reach out to Freddie Mac and you came here looking for him. No, he's not a registered real estate agent at The OFFICIAL Real Estate Agent Directory ...
The definition of a foreclosure bailout loan: a secured loan obtained by a mortgagor in order to save an owner-occupied house that is under foreclosure. It is a refinancing loan and it ...
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