real estate finance - full book (500 pgs)

Generally the 25 to 30 year loan in which the

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Unformatted text preview: ncreasing number of more flexible and creative methods have evolved to provide ways of financing real estate. Long–Term Amortized Loan – The traditional fixed–rate long–term (25– 30 year) amortized loan has become less prevalent because of fluctuating interest rates and periods of tight money markets. Generally, the 25 to 30 year loan in which the principal and interest are paid in full by a series of equal or nearly equal periodic payments has become the standard since the advent of FHA. Since the period of extremely high interest rates in 1981–82, some lenders have offered 40–year loans to enable some additional prospective buyers to qualify for financing because of the lower monthly payment required for 40 year amortization compared with 30–year amortization. However, not much is gained by this technique, and the cost can be significant. ARM – Since 1979 the adjustable rate mortgage and mortgages with balloon payment provisions have become commonplace. Real estate debt in the last few decades has increased significantly. Tax Structure – Income taxation has dramatically affected real estate as an attractive investment. 1-4 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 1. IMPORTANCE OF REAL ESTATE FINANCE Example: A $100,000 loan at an interest rate of 10% can be compared at 30 years vs. 40 years Term 30 years 40 years Difference Monthly Payment $877.58 $849.15 $28.43 Total Interest Full Term $215,926 $307,590 $91,664 Total Interest Paid In First 5 years $49,228 $49,724 $496 For the homebuyer who does not expect to own the home very long the $28.43 monthly reduction in principal and interest payment could be the difference between qualifying and not qualifying, and could be well worth the additional interest over the short term. THE 1989 S&L BAILOUT Background – Following “deregulation” of the savings and loan industry, beginning in 1980, many S&Ls began aggressive expansion into riskier investments, opening the door...
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