real estate finance - full book (500 pgs)

Lockin an aitd can be used where an existing note

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Unformatted text preview: , has been called the first true hybrid of an ARM with a fixed–rate mortgage. It is a half–fixed, half–adjustable loan that could become attractive to both consumers and lenders. One of the attractive features of this new mortgage instrument is its anticipated ability to attract foreign–held dollars into American home mortgages. Because the ARM portion of the mortgage will be tied to the most popular international capital–market rate index, it is expected that it will attract into the American home–buying market billions of foreign–held dollars that are now being invested outside the United States. That market rate index is the international capital market's most commonly used money–cost yardstick–LIBOR, the London inter–bank offering rate. The advantage of using LIBOR rather than U.S. Treasury bill rates or Federal Home loan Bank cost–of–funds rates, is that it opens the door to lenders in other parts of the world whose investments are tied to LIBOR. Previously, mortgage borrowers have had to choose between ARMs or fixed–rate alternatives. This new split–rate mortgage offers a combination of the two. For example, a split–rate might be offered this month at a 5% fixed rate. It would not change during the life of the loan. On top of the fixed–rate coupon or note would be an adjustable–rate coupon or note, with a current yield of possibly 4½%, tied to LIBOR. It would be designed to carry a lower rate than fixed–rate conventional loans, making it attractive to borrowers. ASSUMPTION OF AN EXISTING LOAN A buyer may wish to take over (assume, become primarily liable for) an existing loan on a property if the terms and conditions are more attractive than new financing, such as a lower interest rate or a longer amortization. Restrictions – Many loans are not assumable or may be assumable only if the interest rate is increased (in many cases, to the current market rate) at the time of assumption. If uncertain, one should read the existi...
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