Chapter 6 Basic Features of a Residential Loan

Chapter 6 Basic Features of a Residential Loan - Financing...

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Financing Residential Real Estate Lesson 6: Basic Features of a Residential Loan
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Introduction In this lesson we will cover: amortization repayment periods loan-to-value ratios mortgage insurance and loan guaranties secondary financing fixed and adjustable interest rates
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Amortization Loan amortization refers to how principal and interest are paid to lender during loan term.
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Amortization Loan amortization refers to how principal and interest are paid to lender during loan term. Amortized loan Borrower required to make regular installment payments that include principal as well as interest.
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Amortization Payments for a fully amortized loan are enough to pay off all principal and interest by end of loan term. Payment amount is same throughout term. Fully amortized loan
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Amortization Payments for a fully amortized loan are enough to pay off all principal and interest by end of loan term. Payment amount is same throughout term. Every month, interest portion of payment is smaller, and principal portion is larger. Fully amortized loan
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Amortization Payments for a fully amortized loan are enough to pay off all principal and interest by end of loan term. Payment amount is same throughout term. Every month, interest portion of payment is smaller, and principal portion is larger. I Interest portion gets smaller because it’s based on remaining principal balance. I Balance is steadily reduced by principal portion of payments. Fully amortized loan
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Amortization Partially amortized loan also requires regular payments that include principal as well as interest. But payments aren’t enough to pay off debt by end of loan term. Balloon payment is required to pay remainder of principal. Partially amortized loan
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Amortization Interest-only loan calls for regular payments that cover only the interest accruing, without paying any of the principal, either: I during entire loan term, or I during specified interest-only period at beginning of term. Interest-only loan
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Amortization If payments are interest-only during entire term, whole amount originally borrowed is due at end. Interest-only loan
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Amortization If payments are interest-only during limited period: At end of that period, borrower must start making amortized payments that will pay off all principal and interest by end of term. Payment may increase sharply at end of interest-only period. Interest-only loan
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Repayment Period Repayment period: number of years borrower has to repay loan. Also called the loan term .
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Repayment Period Until 1930s, typical repayment period for mortgage loan was 5 years. I If lender didn’t renew loan, balloon payment required.
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Until 1930s, typical repayment period for mortgage loan was 5 years. I
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Chapter 6 Basic Features of a Residential Loan - Financing...

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