Types of Mortgage & Selling a Home Objective: SWBAT identify the financing involved in purchasing and selling a home. Do Now: How do Fixed-Rate Mortgages differ from Adjustable-Rate Mortgages?

Mortgages Mortgage is a long-term loan extended to someone who buys property Monthly payments on a mortgage are set at a level that allows Amortization of the loan Amortization is the reduction of a loan balance through payments made over a period of time, so balance is reduced every time you make a payment The amount of payment is applied first to the interest owed and then to the principal Paying off a mortgage early can save interest charges over the long run; however, some lenders charge an extra fee for prepaying

Types of Mortgages Fixed-Rate Mortgages Adjustable-Rate Mortgages (ARM) Convertible ARMs Government Financing Programs Home Equity Loans Refinancing

1. Fixed-Rate Mortgages aka Conventional Mortgages Mortgage with a fixed interest rate and a fixed schedule of payments Conventional mortgages typically run for a period of 15, 20, or 30 years. They offer the peace of mind because monthly payments always remain the same

2. Adjustable-Rate Mortgages (ARM) aka Variable-payment Mortgages Mortgage with an interest rate that increases or decreases during the life of the loan If interest rates decline and stay low, an ARM will save you substantial amounts of money If interest rates increase and stay high, an ARM may costs you a lot of money because your monthly payment will go up

2. ARM (cont.) Most ARMs have a Rate Cap a rate cap limits the amount the interest rate can rise or fall rate caps generally limit increases or decreases of the interest rate to 1-2% in a year, or no more than 5% over the life of the loan Some ARMs also have Payment Caps it limits the size of monthly payment

3. Convertible ARMs FRM ARM A convertible ARMs permit a borrower to change an adjustable-rate mortgage to a fixed-rate mortgage during a certain period of time If you decide to convert, your interest rate will be 0.25-0.5% higher than current rates for conventional fixed-rate 30-year mortgages A conversion fee will be involved

4. Government Financing Programs Federal Housing Administration (FHA) Veterans Administration (VA) They help home buyers who qualify for them obtain low-interest, low-down-payment loans These government do not actually lend the money They guarantees repayment to the lender if the borrower defaults, which is why these lenders give a lower interest rates because they are government backed mortgages

5. Home Equity Loan aka second mortgage A loan based on the difference between current market value of a home and the amount the borrower owes on the mortgage This type of loan can provide money for education, home improvements, or other purposes If the homeowner cannot make the payments on a second mortgage, the lender can take the home

6. Refinancing Obtaining a new mortgage to replace existing one This option can provide homeowners with extra money by reducing their monthly payments Refinancing is not always a good choice To refinance, homeowners have to pay extra fees It may extend the life of a loan General rule: it is an advantage if interest rate drops two or more points below the current rate and when the owner plans to stay in his or her present home for at least two or more years

Selling a Home Preparing a Home for Selling Determining the Selling Price Appraisal: an estimate of the current value of the property, which can be used as a basis for a listing price Choose a real estate agent or sale by owner Commission fee charge by real estate agent is usually 4-6% of the purchase price Get a lawyer or title company to help you with the contract, closing, and other legal matters