1. 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?

2. 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

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

4. 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

5. 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

6. 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

7. 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 % higher than current rates for conventional fixed-rate 30-year mortgages
A conversion fee will be involved

8. 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

9. 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

10. 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

11. 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