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Unformatted text preview: type of mortgage instrument, the alternative mortgage instrument from the standard mortgage instrument. We will talk about the reasons behind the expanded use of alternative mortgage instruments. We will talk about Adjustable rate mortgage, convertible ARM, buy–down mortgage, graduated payment mortgage, growing equity mortgage. Shared– appreciation mortgage and Reverse Annuity mortgage. Adjustable rate mortgages (ARMs) and other alternative mortgage instruments (AMIs) are financing instruments that compete against the standard fixed rate, fully amortized loan program. This competition has been evolving for over 30 years. TYPES OF MORTGAGES
Although the characteristics of the two instruments vary, in this book the word “mortgage” will be used interchangeably with “deed of trust.” The many types of mortgages can be divided into two distinct groups: alternative mortgages and standard mortgages. In alternative mortgages at least one of the four basic characteristics of a deed of trust is varied. Those characteristics are: Dynasty School (www.dynastySchool.com) 9-1 REAL ESTATE FINANCE 1. 2. 3. 4. Interest rate Payments, varied by time or amount Repayment term Negative amortization With a standard deed of trust, characteristics 1 through 3 do not change. The amount of principal, however, decreases with each payment. FIXED RATE MORTGAGE
The name of this standard mortgage is derived from the fact that the payments are constant over the life of the ban, thus the borrower may budget for or plan on a fixed payment. In addition to the fixed–payment feature of the ban, the borrower starts to build equity from the first payment. With the budget mortgage, the principal and interest (P & I) portion of the payment does not vary. The only variable in the payment is the amount needed to pay the taxes, insurance, private mortgage insurance, if any, and any other fees that if not paid may affect the title to the property. It should be noted that the amount that will be...
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- Spring '10