Advantages And Disadvantages Of Mortgage Loans

Since mid 1990s, the subprime mortgage market has grown rapidly experiencing a phenomenal 23% compound annual growth rate to 2006. The total subprime loan originations increased from $65 billion in 1995 to $613 billion in 2006. The subprime sector has become a significant sub-sector of the total residential market accounting for 21% of all residential mortgage originations in 2006. Similarly, by year-end 2006, total outstanding balance of subprime loans grew to $1.2 trillion, approximately 12.6% of all outstanding mortgage debt.

If you're not a financial professional, it may seem like mortgage rates are pretty much arbitrary. One day, they're sitting stable at 3.75%. A month later, they could be 4.375%. Since these rate fluctuations can cost you thousands of dollars over the life of your mortgage, these rate changes can be extremely frustrating for home buyers.

According to Bates & Robb (2015), the history of subprime mortgage lending dates back to the early 1970's when the Community Reinvestment Act (CRA) passed. The CRA change the way federally chartered banks loan money in inner-city communities to primarily low income and minority consumers (Schuchter, & Jutte, 2014). The intent of the CRA was not to prevent the financial crisis; however, it did play a role in the mortgage crisis. The original indictment of the statute, however, it failed to insulate low- and moderate-income communities from the harshest impacts of the crisis (Brescia, 2014). The CRA legislation purpose is to generate a response to lending activities that occurred primarily in urban communities, but it also applies to depository

Adjustable-rate mortgages: in simple terms, an adjustable-rate mortgage is when the interest on a loan changes with the market. This sounds nice if the interest rate is

The company’s products include different mortgage and loan types, with four main products in total. Quicken Loans offers both adjustable rate (ARM) mortgages and fixed rate mortgages. Adjustable rate mortgages are adjusted periodically and are determined on changes in a specific index. Interest rate caps are usually included on ARM loans, and these interests following the trends of one’s specific overall interest rates. Fixed rate mortgage loans are usually in fifteen or thirty year terms, with the borrower agreeing on a fixed payment each month that does not fluctuate. Conventional loans are loans not secured by a government sponsored entity, such as the FHA or VA. Conventional loans conform to the Freddie Mac and Fannie Mae product lines. FHA loans are backed by the Federal Housing and Urban Development Administration. These are the most popular loans for first time home buyers, attending to allow housing to become more affordable. They are limited to specific home types and home locations. Quicken Loans jumbo mortgage loans are always larger than the limits set by the Freddie Mac and Fannie Mae agencies each January, with the agencies purchasing the underlying securities from mortgage originators. Currently, the jumbo loans are offered at

After the bursting of the United States housing bubble, many homeowners found themselves in a dire situation. Following the dot-com bubble burst, the Federal Reserve slashed interest rates, meaning credit was cheap. Lower lending standards also meant that consumers with not-so-great credit were suddenly able to attain adjustable rate mortgages with a minimum of money down and easy initial terms. In 2004, approaching the pinnacle of the housing market’s climb, former Federal Reserve Chairman, Alan Greenspan, actually encouraged Americans to take out adjustable rate mortgages. Then, as 2006 came, Americans saw the housing market reach its peak and subsequently plummet downward. As a result, it became difficult to impossible forthe borrowers

Lessen the danger of having a low installment today and a high installment the following month when loan fees vary. Refinancing with an altered rate mortgage tackles this

If the home buyer is able to provide a large down payment and has good credit, a conventional mortgage will save them money. These loans are insured and underwritten through private lenders and investors. Because the lender will typically require 20 percent down, you will already have equity in the house when the documents are signed. Most conventional mortgages have a fixed rate. This means once an interest rate becomes locked, it will not change through the duration of the loan. Anytime you are looking

You should be thinking about your long-term goals and income situation to determine what type of mortgage will best suit your needs.

New loan offerings make it easier to buy a home, but harder to pick which mortgage is right for you. The standard 30-year fixed rate mortgage allows predictable payments. If you’re planning on moving quickly, consider an adjustable rate mortgage, which has low

Before a lender approves a construction mortgage, they have to know all that will be involved in building the home. This includes the blueprint, materials, labor, other costs associated with the construction, and the time it will take to completely build the home. Construction mortgages are normally variable-rate loans which are priced at according to the prime rate. The homebuilder, lender, and contractor will set the schedule for withdrawal of funds for each stage of the

The ratio of adjustable-rate mortgages to fixed-rate mortgages is lowest when interest rates are low because borrowers prefer to lock in the low market rates for long periods of time. When rates are high, adjustable-rate mortgages allow borrowers the potential to realize relief from high interest rates in the future when rates decline.

In the past, jumbo mortgage loans often came with higher interest rates. The lender was taking on more risk due to the high amount of the loan and the difficulty they may encounter if the property goes into foreclosure, as luxury properties are harder to sell. This trend in interest rates appears to be changing, however, due in part to Fannie Mae and Freddie Mac raising fees at their institutions. Recently, jumbo home loans have actually seen interest rates drop below those of conforming loans, but a home buyer must shop around to ensure they get the best deal on their jumbo mortgage, as with any home mortgage loan. One must also take into

Mortgage lending is a major sector with the United States financial market today. “The modern mortgage has only been around since the 1930s, but the idea of a mortgage has been around for a lot longer.” (History of Mortgages, 2016) The literal meaning of the word ‘mortgage’ has Latin roots: ‘mort’ or death and ‘gage’ or pledge. Translated it supports “the idea that the pledge died once the loan was repaid, and also the idea that the property was ‘dead’ (or forfeit) if the loan wasn’t repaid.” (History of Mortgages, 2016) A mortgage is an agreement for the terms of your home loan, technically not the home loan itself. Real estate transactions require written documentation and this is the purpose of a mortgage.

“Like subprime mortgages, many prime loans made in recent years allowed borrowers to pay less initially and face higher adjustable payments a few years later. As long as home prices were rising, these borrowers could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders clamping down, homeowners with solid credit are starting to come under the same financial stress as those with subprime credit.” (Bajaj, Vikas and Louise, Story)