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Unformatted text preview: -revocable savings account with an automatic payment to the lender. The lower interest rate usually lasts two to three years. Costs of the buydown may be passed to the buyer–borrower in the form of a higher sales price. Some S&Ls now offer borrowers an opportunity to buy down the terms of an adjustable rate mortgage: Start rate – The borrower may be permitted to reduce the starting interest rate by the payment of a certain fee. Example: The lender may reduce the starting interest rate by 1/8% for a consideration of 1/4 of a point. Stated cap – The lender may be willing to reduce the stated interest rate cap. Example: Reduce the rate cap by 1/8% for a consideration of 1/4 of a point. Margin – The lender may reduce the interest margin. Example: A reduction of 1/8% for a consideration of 3/4 of a point. SHARED APPRECIATION MORTGAGE
A shared appreciation mortgage is a first mortgage loan offered by a lender at a below– market interest rate in exchange for a percentage share in the future gain of the property's value. Common characteristics include a fixed interest rate, and a discounted rate in exchange for equity share. The borrower makes no guarantee on the amount of appreciation in property value. Ratios may vary for individual lenders.
Dynasty School (www.dynastySchool.com) 9-49 REAL ESTATE FINANCE
Most common is a 33.3% reduction in interest rate for a 33.3% share of the increased value of the property upon its sale or at a predetermined date. The lender may be required to set a maximum “call date” or “balloon date,” after which the lender may enter into a new SAM loan. Advantages –More borrowers are able to qualify due to the lower interest rate, lower payments, and lower down payment. During an inflationary period, the lender's yield is greater than on a conventional loan, and there may be tax advantages due to the deferred yield. EQUITY PARTICIPATION PLAN
An equity participation plan involves an owner/occupant and an investor who share the cost of ownership, equity, and tax benefits. A common application is that parents assist a son or daughter to acquire a home by putting up the cash for a down payment in exchange for an equity position in the property. Also, an employer mi...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10