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Amortization

Monday, May 4, 2015

by Mike Parker

The word describes the process of accounting that will repay a loan over time. Residential buyers will most commonly be required to have an amortized mortgage.

When amortizing a fixed rate mortgage, the payment remains constant for the entire term but the allocation of what goes to principal and interest changes with each payment that is made. Since an amount of each payment retires the principal, the interest due on the next payment is calculated on the unpaid balance after the previous payment was made. amortization schedule.png

This means that an increasing amount is applied to principal on each payment while the amount owed in interest decreases. If normal payments are made each time, on time, the loan will be completed paid off at the end of the term.

You can see in the example of a mortgage of $200,000 at 3.25% for 30 years that it has a fixed principal and interest payment of $870.41. There is $541.67 due in interest with the first payment and the remainder is applied to principal leaving an unpaid balance of $199,671.25. Since the interest due in the second payment is based on a lower principal, a little more is applied to principal.

If you’d like to have an amortization schedule for a mortgage, click here and enter the information about the loan.

Top 10 FHA Loan Advantages

Monday, June 20, 2011

by Mike Parker

Fannie Mae and Freddie Mac underwritten conventional, FHA and VA loans account for the vast majority of mortgages chosen by buyers to finance their home purchase. While buyers have the choice on which product to use, there are some considerable advantages to FHA.

More tolerant for credit challenges than conventional loans.

Lower down payments than conventional loans.
Broader qualifying ratios - total house payment with MIP can be up to 31% of borrower's monthly gross income and total house payment with all recurring debt can be up to 43%.
Seller can contribute up to 6% of purchase price - this money must be specified in the contract and can be used to pay all or part of the buyer's closing costs, pre-paid items and/or buy-down of the interest rate.
Self-employed may qualify with adequate documentation - two year's tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
Mortgage Insurance Premium can be released in five years when the balance is 78% of original sales price
Liberal use of gift monies - borrowers can receive a cash gift to assist in purchase from family members, buyer's employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
Special 203(k) program for buying a home that needs capital improvements - requires a firm contractor's bid attached to the contract specifying the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
Loans are assumable at the existing interest rate - assumptions require buyer qualification but are actually easier than qualifying for a new mortgage. Closing costs are lower on assumptions than originating a new mortgage.
If the rate on the assumable mortgage is lower than current rates for new mortgages, it could add value to the property.