MORTGAGE MARKETS

Mortgages
▸ Loans to individuals or businesses to purchase
home, land, or other real property.

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Reasons for examining Mortgage Markets
separately from bonds and Stock markets

(1) mortgages are backed by a specific piece of

real property
(2) there is no set size or denomination for
primary mortgages.
(3) primary mortgages generally involve a single
investor
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Four basic categories of mortgages
are issued by financial institutions
(1) Home
(2) multifamily dwelling
(3) Commercial
(4) farm

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Mortgage Characteristics
(1) Collateral
(2) Down Payment
(3) Insured versus Conventional Mortgages
(4) Mortgage Maturities
(5) Interest Rates.

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Interest Rates
(1) Fixed-rate Mortgage
A mortgage that locks in the borrower’s interest
rate and thus the required monthly payment
over the life of the mortgage, regardless of
how market rates change.

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Interest Rates
(2) Adjustable-rate mortgage
A mortgage in which the interest rate is tied to
some market interest rate. Thus, the required
monthly payments can change over the life of
the mortgage

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Interest Rates
(3) Discount points
Interest payments made when the loan is
issued (at closing). One discount point paid up
front is equal to 1 percent of the principal value
of the mortgage.

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Other Fees directly related to Mortgage Contracts
(1) Application fee.
(2) Title search.
(3) Title insurance
(4) Appraisal fee.
(5) Loan origination fee
(6) Closing agent and review fees.
(7) Other costs.

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Mortgage Refinancing
Mortgage refinancing occurs when a mortgage
borrower takes out a new mortgage and uses
the proceeds obtained to pay off the current
mortgage.

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Mortgage Amortization
The fixed monthly payment made by a
mortgage borrower generally consists partly of
repayment of the principal borrowed and
partly of the interest on the outstanding
(remaining) balance of the mortgage

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Calculation of Monthly Mortgage Payments
You plan to purchase a house for P150,000
using a 15-year mortgage obtained from your
local bank. The mortgage rate offered to you is
8 percent with zero points. In order to forgo the
purchase of private mortgage insurance, you
will make a down payment of 20 percent of the
purchase price at closing and borrow P120,000
through the mortgage.
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Other Types of Mortgages
(1) Jumbo mortgages
(2) Subprime Mortgages
(3) Alt-A Mortgages
(4) Option ARMs
(5) Second Mortgages
(6) Reverse-Annuity Mortgages
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