MORTGAGE DESIGNS

Interest rates and more…

Rebecca LeMaster

Agenda Fixed Mortgages

Other Mortgage Options

Adjustable Mortgages

Balloon Mortgages

Fixed Mortgages

Month Payment Principal Interest Balance

1 $599.55 99.55 500.00 $99,900.45

2 $599.55 100.05 499.50 $99,800.40

3 $599.55 100.55 499.00 $99,699.85

4 $599.55 101.05 498.50 $99,598.80

5 $599.55 101.56 497.99 $99,497.24

……….. …….... ………. ………….

356 $599.55 584.78 14.77 $2,368.52

357 $599.55 587.71 11.84 $1,780.81

358 $599.55 590.65 8.90 $1,190.17

359 $599.55 593.60 $5.95 $596.57

360 $599.55 596.57 2.98 $0.00

$100,000 6% 30 Year

Types of Mortgages - Options

Fixed Adjustable Balloon Bullet VA FHA Interest Only Reverse

Adjustable Rate Mortgages (ARM)

Types: 1-year (1/1), 3/1, 5/1, 7/1, 10/1, 3/3, 5/5, 5/25…

Rate Adjustment Period Initial Rate Period Interest Rate Index (LIBOR, 1yr Treasury) Margin Added to Index Initial, Periodic and Lifetime Caps Floor, Ceiling

ARM (5/1)

$100,000 3% initial 30 Year2.5 % margin Index: 1 year LIBOR (5%)

Caps: 5% initial, 2% annual, 5% lifetime, 3% Floor, 8% Ceiling

Month Rate Index Payment Interest Principal Balance

1 3.0% 4.917% 421.61 250.00 171.61 99,828.39

2 3.0% 4.833% 421.61 249.57 172.04 99,656.35

3 3.0% 4.750% 421.61 249.14 172.47 99,483.88

4 3.0% 4.667% 421.61 248.71 172.90 99,310.98

5 3.0% 4.583% 421.61 248.28 173.33 99,137.65

ARM (5/1)Month Rate Index Payment Interest Principal

Balance

61 6.417% 3.917% 595.68 475.40 120.28 88,785.71

62 6.417% 3.833% 595.68 474.76 120.92 88,664.79

63 6.417% 3.750% 595.68 474.11 121.57 88,543.22

73 5.583% 3.083% 551.64 406.74 144.90 87,274.53

74 5.583% 3.167% 551.64 406.07 145.57 87,128.96

75 5.583% 3.250% 551.64 405.39 146.25 86,982.71

85 6.583% 4.083% 603.02 469.81 133.21 85,502.26

86 6.583% 4.167% 603.02 469.07 133.95 85,368.31

87 6.583% 4.250% 603.02 468.34 134.68 85,233.63

97 7.417% 4.917% 646.11 519.09 127.02 83,860.74

98 7.417% 4.833% 646.11 518.31 127.80 83,732.94

99 7.417% 4.750% 646.11 517.52 128.59 83,604.35

Fixed or Adjustable?(Were you paying attention???)

Which is a better deal? i.e. Which has a higher/lower cash outflow?

Fixed: $193,255.20 Adjustable: $204,807.39Difference: $11,552.19

Who would want a fixed rate?Who would want an adjustable rate?

Fixed: Older adults, planning to stay long-term

Adjustable: Younger adults, not planning to stay long-term

Balloon Mortgages

Typically 5, 7 or 10 years

15, 20 or 30 year amortization period

Must be paid off or refinanced at end

Not common anymore

Often convertible, terms/conditions vary

Balloon Mortgage Monthly payments, 30-year amortized, balance

due at end of short time period $100,000, 5%, 5 year (60 months)

1 $536.82 $416.67 $120.15 $99,879.85

2 $536.82 $416.17 $120.65 $99,759.20

3 $536.82 $415.66 $121.16 $99,638.04

4 $536.82 $415.16 $121.66 $99,516.38

5 $536.82 $414.65 $122.17 $99,394.21

Month Payment Interest Principal Balance

58 $536.82 $384.53 $152.29 $92,135.29

59 $536.82 $383.90 $152.92 $91,982.37

Balloon $92,365.63 $383.26 $91,982.37 $0.00

Summary

Fixed Mortgages

Many Types of Mortgages

Adjustable Rate Mortgages

Balloon Mortgages

References http://www.homeloanlearningcenter.com/mortgagebasics/mortgagetypes.htm http://www.usa.gov/topics/family/homeowners/buyingselling/mortgages/types.shtml http://www.mortgagecalculator.org/helpful-advice/types-of-mortgages.php http://www.isoldmyhouse.com/fsbo/mortgage-types.cfm http://www.investopedia.com/university/mortgage/mortgage4.asp http://www.usa.gov/topics/family/homeowners/buyingselling/mortgages/types.shtml https://www.lendingtree.com/mortgage/arm-interest-rate-caps-article http://www.mtgprofessor.com/Calculators/Calculator7b.html http://www.mortgagecalculator.org/helpful-advice/types-of-mortgages.php http://en.wikipedia.org/wiki/Adjustable-rate_mortgage http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx?MSA=6442&MSA=6

442&MSA=6442&MSA=6442 http://tcalc.timevalue.com/all-financial-calculators/mortgage-calculators/balloon-mortgage-

calculator.aspx?PRINCIPALAMOUNT=100000&DOWNPAYMENTAMOUNT=0&DOWNPAYMENTAMOUNT_TYPE=Percent&TERM=30&TERM_UNITS=Years&BALLOONPAYMENTAFTER=5&BALLOONPAYMENTAFTER_UNITS=Years&INTERESTRATE=5.0%25&COMPUTE=COMPUTE&SHOWAMORTIZATIONSCHEDULE=on&CALCULATORID=HF04&HIDEFORMTAG=TRUE&TEMPLATE_ID=www.timevaluecalculators.com_1&PostBack=true#results

http://ncacu.org/borrow/mortgages/#balloon http://rws.rwstools.com/templateroot/Articles/LoanPrograms.asp?ArticleID=1026&pvlid=5062& http://math.info/Misc/Amortization_Formulas/

Questions???