Transcript Lending Practices

Lending Practices
______________________________
I. Loan Terminology:
•
•
•
•
•
•
Principal
Interest Rates
Duration of Loan
Debt Service
Amortization
Equity – the difference between the
value of the property and the
outstanding debt.
• Points – one percent of the loan amount.
• Origination fee – fee lender charges for
making loan usually stated in terms of a
percentage of loan amount.
• Discount points – lender’s charge to raise
the return on the loan usually stated as a
percentage of the loan amount.
[Should you pay discount points or not?]
Points vs. No Points:
Example: Assume you pay 2 discount points on the loan
and the rate is reduced by .05% point. Should you pay
the disc. points?
Consider the monthly savings; the cost of the points; what
you could earn on investing the cost of the points and the
length of time you intend to stay in the home.
Without Discount Points
Loan:
Annual
Int. Rate:
Loan Period:
Monthly Payment:
Total Interest paid:
With Discount Points
Loan:
Annual
Int. Rate:
Loan Period:
Monthly Payment:
Total Interest paid:
$100,000.00
8.5%
30 years
$768.91
$176,808.60
$100,000.00
8.0%
30 years
733.76
$164,149.66
-You save $35.15 per month with discount points.
-The discount points cost $2,000.00 so it would take about 57 (4
yrs and almost 9 months) months for you to break even on the cost
of the points with the monthly savings.
-Also co nsider that if you invest in the $2000.00 in a CD at 6%
interest you would have about $2,837.00 after 6 years.
Loan-to-Value
• The relationship between the amount the
lender is willing to loan and the market
value of the property.
• Market value = $100,000
Loan = $80,000
What is the loan-to-value ratio?
80%
Mortgage Insurance
• Private Mortgage Insurance
• PMI
• Insures lenders against losses
II. Loan Types
• Term loan – interest payments only until due.
• Amortized loan – regular equal payments for life of
loan including both principal & interest.
• Budget Mortgage
• Balloon loan – any loan that has a final payment
larger than any of the previous.
• Partially amortized loan – series of amortized
payments with a balloon payment at maturity.
[Should pay mortgage off early?]
15 vs. 30 year loans:
Example:
30 year loan
Loan:
Annual
Int. Rate:
Loan Period:
Monthly Payment:
Total Interest paid:
15 year loan
Loan:
Annual
Int. Rate:
Loan Period:
Monthly Payment:
Total Interest paid:
Addit. Mon. Pymt
$100,000.00
8.5%
30 years
23.83 years
$768.91
$176,808.60
$100.00
$107,853.84
$100,000.00
8.5%
15 years
12.50
$984.74
$77,253.121
$100.00
$62,660.07
Repaying a 6-year, $1,000 Loan
9% Interest per Year on the Loan
Balance Owed Each Year of the Loan
Amortization Table: Monthly Payment per $1,000 of Loan
Balance Owing on a $1,000 Amortized Loan
III. Loan Programs
• Conventional
• VA
• FHA
VA / FHA Comparison
FHA
Insures loans
UFMIP
Anyone qualified
Rate negotiable
Points
3-5% down
97-95% L-T-V
VA
Guarantees loans
Funding fee
Veterans only
Rate negotiable
Points
No down payment
100% L-T-V
VA / FHA Similarities
• Owner occupied
• 1-4 family dwellings
• Refinancing allowed
• Assumption allowed (with approval)
Loan Limits Info
• VA
– http://www.homeloans.va.gov/
• FHA
– https://entp.hud.gov/idapp/html/hicostlook.cfm
• Conv
–
http://www.fanniemae.com/aboutfm/loanlimits.jhtml?p=About+Fannie+Mae&s=Loan+Limits