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Mortgage Loans
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What is a Mortgage Loan?
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What is a Mortgage Loan?
• A loan secured by real property
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What is a Mortgage Loan?
• A loan secured by real property– Real Property: Land
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What is a Mortgage Loan?
• A loan secured by real property– Real Property: Land
• Mortgage: the document which shows the property has a debt against it
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What is a Mortgage Loan?
• A loan secured by real property– Real Property: Land
• Mortgage: the document which shows the property has a debt against it– The Mortgage is used to secure the debt
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What is a Mortgage Loan?
• A loan secured by real property– Real Property: Land
• Mortgage: the document which shows the property has a debt against it– The Mortgage is used to secure the debt– Mortgage has become a generic term for the loan
itself
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Important Terms:
Borrower:Lender:Collateral:Principal:Interest:
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Important Terms:
Borrower: Someone who is receiving money in exchange for a pledge to repay it
Lender:Collateral:Principal:Interest:
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Important Terms:
Borrower: Someone who is receiving money in exchange for a pledge to repay it
Lender: Someone who is providing money in exchange for a pledge of repayment
Collateral:Principal:Interest:
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Important Terms:
Borrower: Someone who is receiving money in exchange for a pledge to repay it
Lender: Someone who is providing money in exchange for a pledge of repayment
Collateral: Property pledged to a lender to secure repayment of a debt
Principal:Interest:
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Important Terms:
Borrower: Someone who is receiving money in exchange for a pledge to repay it
Lender: Someone who is providing money in exchange for a pledge of repayment
Collateral: Property pledged to a lender to secure repayment of a debt
Principal: The amount of money being borrowedInterest:
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Important Terms:
Borrower: Someone who is receiving money in exchange for a pledge to repay it
Lender: Someone who is providing money in exchange for a pledge of repayment
Collateral: Property pledged to a lender to secure repayment of a debt
Principal: The amount of money being borrowedInterest: Money paid to a lender in excess of the
principal
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What is Foreclosure?
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What is Foreclosure?
Foreclosure: the lender seizing control of or repossessing the property
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What is Foreclosure?
Foreclosure: the lender seizing control of or repossessing the property
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Two Types of Mortgages:
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Two Types of Mortgages:
• Fixed Rate Mortgage:
• Adjustable Rate Mortgage:
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Two Types of Mortgages:
• Fixed Rate Mortgage: The interest rate is constant for the life of the loan
• Adjustable Rate Mortgage:
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Two Types of Mortgages:
• Fixed Rate Mortgage: The interest rate is constant for the life of the loan– Therefore, the principle and interest payments
remain the same for the life of the loan.
• Adjustable Rate Mortgage:
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Two Types of Mortgages:
• Fixed Rate Mortgage: The interest rate is constant for the life of the loan– Therefore, the principle and interest payments
remain the same for the life of the loan.
• Adjustable Rate Mortgage: The interest rate of the loan resets periodically during the life of the loan
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Two Types of Mortgages:
• Fixed Rate Mortgage: The interest rate is constant for the life of the loan– Therefore, the principle and interest payments
remain the same for the life of the loan.
• Adjustable Rate Mortgage: The interest rate of the loan resets periodically during the life of the loan– With the changes to the interest rate, the principle
and interest payments also change
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Property Values: 3 Methods for determining values
Actual Value:
Appraisal:
Estimated:
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Property Values: 3 Methods for determining values
Actual Value: The sale price of a property
Appraisal:
Estimated:
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Property Values: 3 Methods for determining values
Actual Value: The sale price of a property- Not usually available unless it is being
purchasedAppraisal:
Estimated:
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Property Values: 3 Methods for determining values
Actual Value: The sale price of a property- Not usually available unless it is being
purchasedAppraisal: A value determined by a licensed
professionalEstimated:
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Property Values: 3 Methods for determining values
Actual Value: The sale price of a property- Not usually available unless it is being
purchasedAppraisal: A value determined by a licensed
professionalEstimated: A value obtained by the lender using
an internal method
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Formula for Calculating a Mortgage Payment Amount:
c = the monthly principal and interest payment amount
P = the principal balance of the loanr = the interest rate ÷ 12N = the number of principal and interest payments
Pr(1 )
(1 ) 1
N
N
rc
r
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Example 1:
You obtain a $200,000 mortgage loan at a rate of 5.25%. The loan is to be repaid over a 30 year period. What is the monthly principal and interest payment amount for the loan?
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Example 2:
You obtain a $375,000 mortgage loan at a rate of 6%. The loan is to be repaid over a 30 year period. What is the monthly principal and interest payment amount for the loan?
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Calculating the Total Interest Paid Over the Life of the Loan:
I = cN – P
I = the total interest paid to the lenderc = the monthly principal and interest payment
amountN = the number of principal and interest
paymentsP = the initial principal balance of the loan
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Example 1:
You obtain a $200,000 mortgage loan at a rate of 5.25%. The loan is to be repaid over a 30 year period. What is total interest paid over the life of the loan?
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Example 2:
You obtain a $375,000 mortgage loan at a rate of 6%. The loan is to be repaid over a 30 year period. What is the total interest paid over the life of the loan?
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