chapter 12 study guide

chapter 12 study guide - Chapter 12 Mortgage markets...

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Chapter 12- Mortgage markets Mortgage- long term loan secured by real estate Amortized- borrower pays it off over time in combination of interest and principal payments that result in full payment of debt by maturity o Who gets a mortgage 76.6 1-4 family home 5.49 multi family home 16.68 commercial building 1.22 farm History of mortgages o Originally banks couldn’t give mortgages o Nat’l banking act of 1863 further restricted o Individual to individual lending in the west o Mortgage market devastated in the great depression Balloon loans- borrower paid only interest for 3-5 years at which time the entire loan amount was then due Mortgage interest rate o Interest rate is most important dictator in decision of how much and who to borrow o Interest rate determined by Market rate- LT market rates determined by supply/demand for LT funds. Mortgage rates stay above t-bill rates but track with them Term- longer term have higher rates. Usual length 15 or 30 years Discount points- interest payments made at the beginning of a loan. 1 discount point= 1% of loan at closing. The more points the lower the interest rate Loan terms o Collateral- item pledged as security; usually the real estate. Lien- lender places lien until the loan is paid off. Lien attaches to the property. Must be paid off by a selling party or it’ll pass to the buying party o down payment- pay a portion of the purchase price. Lessens risk for lenders. o Private mortgage insurance- insurance policy that gurantees to make up discrepancy between the value of the property and loan amount if seller defaults Ex- if the balance of a loan is 120,000 at default and the property is worth 100,000 PMI would pay 20,000
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chapter 12 study guide - Chapter 12 Mortgage markets...

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