Scribd
Upload
283 views11 pages

RES 3200 Chapter 4 Fixed Interest Rate Mortgage Loans

The document discusses fixed rate mortgage loans. It provides an overview of how mortgage interest rates are determined by demand and supply as well as risk factors like inflation and default. It then describes the terms of a fixed rate mortgage, including the fixed interest rate that applies for the entire loan term. It also explains how payments and loan balances are calculated over time through amortization, with examples of a 30-year fixed rate mortgage amortization schedule.

Uploaded by

baorunchen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
283 views11 pages

RES 3200 Chapter 4 Fixed Interest Rate Mortgage Loans

The document discusses fixed rate mortgage loans. It provides an overview of how mortgage interest rates are determined by demand and supply as well as risk factors like inflation and default. It then describes the terms of a fixed rate mortgage, including the fixed interest rate that applies for the entire loan term. It also explains how payments and loan balances are calculated over time through amortization, with examples of a 30-year fixed rate mortgage amortization schedule.

Uploaded by

baorunchen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 11

Chapter 4: Fixed Interest Rate

Mortgage Loans
• Mortgage Interest Rates: A Brief
Overview

• Fixed Interest Rate Mortgage (FRM)


Loan Terms

• Calculating Payments and Loan Balances

1
Mortgage Interest Rates:
A Brief Overview

• Demand and Supply.

• What Borrowers are willing to pay.

• What Lenders are willing to accept.

2
Mortgage Interest Rates:
A Brief Overview

• Returns on available mortgage.

• Risk of loss on alternative


investments.

• The Real Rate of Interest.

3
Mortgage Interest Rates:
A Brief Overview

• Interest Rates and Risk such as:


 Inflation - High enough to compensate for
unexpected loss in purchasing power.

 Default - The event in which companies or


individuals are unable to make the required
payments on their debt obligations.

4
Mortgage Interest Rates:
A Brief Overview

• Interest Rates and Risk such as:


 Interest Rate - The uncertainty about the
future of supply of savings, demand for
housing, and future levels of inflation.

 Prepayment - The loan will be prepaid when


interest rates fall below the loan contract.

5
Fixed Interest Rate Mortgage (FRM)
Loan Terms
• A mortgage that has a fixed interest rate for the
entire term of the loan.

• The interest rate for every period of the mortgage


is known at the time the mortgage is originated.

• The benefit is that the borrower will not have to


contend with varying loan payment amounts that
fluctuate with interest rate movements.

6
Fixed Interest Rate Mortgage (FRM)
Loan Terms
• Usually contain the following terms and
conditions:
 Amount – The amount borrowed and what the
borrower is legally required to pay.
 Maturity Date – The date the loan must be fully
repaid.
 Interest Rate - Paid by borrowers for the use of
money that they borrow from lenders.
 Terms - Tells you how long the loan will exist and the
requirements of the loan agreement.

7
Calculating Payments and Loan
Balances
• Accrued Interest
 Interest that has accumulated since
the initial investment.

 The amount of interest owed to the


lender.

8
Calculating Payments and Loan
Balances
• Amortization
 Is the process of decreasing, or
accounting for, an amount over a
period of time.

9
Calculating Payments and Loan
Balances
• Loan Amortizing Patterns:
 Fully amortizing – Payments are sufficient to fully
pay off the loan at maturity.
 Partially amortizing - Payments are insufficient to pay
off the loan at maturity.
 Interest only – The full, original loan amount will
have to be paid at maturity.
 Negative amortizing – The loan balance will be
greater than the original loan amount at maturity.

10
Calculating Payments and Loan
Balances
30 Year Fixed

Month Beginning Monthly Interest Amortization Ending Loan


Loan Balance Payment (.12 / 12) Balance

1 $60,000.00 $617.17 $600.00 $17.17 $59,982.83

2 $59,982.83 $617.17 $599.82 $17.35 $59,965.48

3 $59,965.48 $617.17 $599.65 $17.52 $59,947.97

11

You might also like