Mortgage Market

Mortgage: Loan to individual or business to buy land, homes, real property

4 Basic Types:

  • Single Family

  • Multi Family

  • Commercial

  • Farm

Mortgages are amortized, meaning it follows an amortization schedule. Payments are towards principal and interest

(Unamoritized loans - payments cover just interest)

Insured vs Conventional

  • Federally Insured Mortgage - by the Fed. Housing Admin (borrow 79%). or the Veterans Admin (borrow 100%).

  • Conventional Mortgage - typically PMI in secondary markets.

Fixed Rate Mortgage - fixed over time

Adjustable Rate Mortgage (ARMs) - tie the interest rate

Mortgage Maturities are either 15 or 30 years. Shorter Loan = Higher Monthly Payment., vise verdas.


Interest Rates Mortgage

  • Interest rate: Market trate on available funds

  • Additional Factors

  • Fixed vs variable

  • Discount points

  • credit risk

  • other fees

Mortgage Refinancing

  • Pay higher interest loan with proceeds from a lower loan

  • Borrowers must balance savings of a lower payment with costs and fees of refinancing

  • New Interest rate should be 2% less than the old date

Other Types of Mortgages

  • Second Mortgages

  • Reverse-Annuity Mortgage

Secondary Mortgage Markets

Institutions remove mortgage from balance sheet by either:

  • pooling mortgage and selling in secondary market

  • securitization

US established guidelines to stimulate secondary market liquidity regarding conventional loans.

 

Three Major types of Mortgage-Backed Securities

  • Pass-Through 

  • Collateralized

  • Mortgage-backed bond

Key things to remember:

  • Differences between amortized and unamortized loans

    • Most are amortized besides balloon mortgage    

  • Insured vs Conventional Mortgage

  • Fixed Rate & Adjustable rates Mortgages

  • Typically 15 or 30 Year Mortgage