The Mortgage Markets 《金融市场学》课件.pptVIP

The Mortgage Markets What Are Mortgages? A long-term loan secured by real estate The loan is amortized: the borrower pay it off over time in some combination of principal and interest payments that result in full payment of the debt by maturity. Balloon loans: the borrower paid only interest for three to five years, at which time the entire loan amount became due. The lender was usually willing to renew the debt with some reduction in principal. Characteristics of the Residential Mortgage Mortgage Interest Rates Market Rates Mortgage rates tend to stay above the less risky Treasury bonds most of the time but tend to track along with them. Term Discount Points Loan Terms Collateral ,liens Down payments Private mortgage insurance Borrower qualifications Mortgage Loan Amortization Mortgage Rates versus Treasury Bonds Discounted points Discounted points (or simply points) are interest payments made at the beginning of a loan. A loan with one discount point means that the borrower pays 1% of the loan at closing, the moment when the borrower signs the loan paper and receives the proceeds of the loan. In exchange for the points, the lender educes the interest rate on the loan. In considering whether to pay points, borrowers must determine whether the reduced interest over the life of the loan fully compensates for the increased up-front expense. The discount point decision There are two loan alternative You pay no discount points and the interest rate is 12%. You pay 2% discount points but receive a lower interest rate of 11.5%. The effective annual rate calculating Effective Rate of Interest Mortgage Loan Amortization Mortgage loan borrowers agree to pay a monthly amount of principal and interest that will fully amortize the loan by its maturity. “Fully amortize” means that the payments will pay off the outstanding indebtedness by the time the loan matures. During the early years of the loan, the lender applies most of the payment to the interest on the loa