real estate finance - full book (500 pgs)

In the early 1970s depository institutions sold only

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Unformatted text preview: loan competitive in the secondary market. The greater the demand in the secondary money market, the higher the discount points will be. One discount point is roughly equivalent to adding 1/8% of prepaid interest to the nominal rate of 30 year period loan (based on a so–called “average” 8–year payoff of a loan). Discount points may also be paid to buy down interest rates or to buy down the terms of an adjustable rate mortgage. LOAN BROKER COMMISSION For bringing together a lender and a borrower a broker may charge a fee, limited for some loans by Article 7 of the Real Estate law. IMPUTED INTEREST The minimum interest rate on seller financing up to $2.8 million is now 9%, compounded semi–annually. If a seller takes less than 9%, the IRS will impute the 9% rate and the seller will pay income tax on that amount of interest. The reason for imputed interest is to prevent sellers from unlawfully converting ordinary income into capital gain. For seller financing over $2.8 million the minimum interest rate is the “Applicable Federal Rate” (AFR), an index published by the U.S. Treasury Department. The AFR is based on the recent interest yields on marketable U.S. government securities such as Treasury bills and Treasury notes. An AFR table is released each month and applies to the following three months. The seller may use the lowest of the most recent three AFRs. Dynasty School (www.dynastySchool.com) 7-9 REAL ESTATE FINANCE SECONDARY MORTGAGE MARKET Loans made by mortgage bankers are customarily resold to other lenders and investors in the resale market known as the secondary market. The purpose of the secondary market is to shift funds from capital surplus areas to capital short areas. One method involves lenders selling loans to each other. Lenders also sell participating interests in blocks of loans to other lenders. Mortgage–backed securities are another tool used to obtain money from the capital market. There are securities backed by FHA and DVA loans and others backed by conventional loans. When lenders speak...
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