1. Define the term amortized but write down its meaning in your own words in reference...

1. Define the term amortized but write down its meaning in your own words in reference to amortized mortgages.

2. Explain what an interest only mortgage is and who is eligible for these types of mortgages

3. Is a mortgage contract an asset or a liability to the lender?

4. Are all mortgages secured debt instruments? 5. Mortgages can be insured? Who insures mortgages and why?

6. Mortgage companies, savings institutions and commercial banks originate mortgages. Do mortgage brokers originate mortgages? If not, what do they do?

7. Can mortgages be sold? If so, who buys mortgages?

8. What’s the difference between Prime and Subprime mortgages?

Solutions

Expert Solution

Answer 1

Dictionary meaning of the term Amortization with respect to the mortgages means ,
*Action or the process of reducing or paying off the debt with regular payments.*

From Accounting point of view ,
*Amortisation is defined as a method by which the cost of debt is spread over some number of years*
*so that we can take the benefit by claiming it as expenses as well as it helps to lower down the book*
*value of the loan amount over the specified period of time.*
*Thus , we can say that amortization is nothing but the process of writing down the value of loan.*

From Fianance point if view,
Term Amortization with respect to mortgages help business and others to know about their liability in
the form of interest amount and the principal amount over the period for which the loan has been taken.

These monthly payments comprising of Interest and principal amount are equal . But the amount pertaining
to interest and principal vary from one month to other. Initially the mortgage payments goes towards interest
payments i.e the amount applied will generally be greater towards the beginning of the repayment period and will
decrease as time goes on.Conversely the amount applied to the principal will be less towards the beginning of
the repayment period and will increase towards the end.

However , Unamortized loan amount indicates that the interest amount will be paid during the life of the loan
and the lumpsum repayment of the debt taken is made at the end of the term of the loan

Thus , we can say that the amortization of the mortgages help us to pay both the interest amount and the debt amount
simultaneously over the period of time thereby increasing our ownership /gaining equity in the asset.

jeff jeffy answered 1 year ago

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