Question

You need to research mortgage rates for the last 30 years. Writing a one page summary of the mortgage rates over the past 30 years. Contrast a mortgage product that would benefit the borrower had they purchased a home 30 years ago against a mortgage product which would have benefited the lender. The one page can include a graph and calculations to support your paper.

Answer 1

A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are also known as "liens against property" or "claims on property."With a fixed-rate mortgage, the borrower pays the same interest rate for the life of the loan.

                             A mortgage rate is the rate of interest charged on a mortgage. Mortgage rates are determined by the lender and can be either fixed, staying the same for the term of the mortgage, or variable, fluctuating with a benchmark interest rate. Mortgage rates vary for borrowers based on their credit profile. Mortgage rate averages also rise and fall with interest rate cycles and can drastically affect the homebuyers' market.

A mortgage is a loan from a bank or other financial institution that helps a borrower purchase a home. The collateral for the mortgage is the home itself, meaning that if the borrower doesn't make monthly payments to the lender and defaults on the loan, the bank can sell the home and recoup its money.

The two basic types of mortgage loans are the fixed rate mortgage (FRM) and adjustable-rate mortgage (ARM) (also known as a floating rate or variable rate mortgage). In some countries, such as the United States, fixed rate mortgages are the norm, but floating rate mortgages are relatively common. Combinations of fixed and floating rate mortgages are also common, whereby a mortgage loan will have a fixed rate for some period, for example the first five years, and vary after the end of that period.

Ø In a fixed-rate mortgage, the interest rate, remains fixed for the life (or term) of the loan. In the case of an annuity repayment scheme, the periodic payment remains the same amount throughout the loan. In the case of linear payback, the periodic payment will gradually decrease.

Ø In an adjustable-rate mortgage, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to some market index. Adjustable rates transfer part of the interest rate risk from the lender to the borrower and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be, for example, 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve.

Calculation

If you want to do the monthly mortgage payment calculation by hand, you'll need the monthly interest rate — just divide the annual interest rate by 12 (the number of months in a year).

Example

Q: Mortgage loan of $300000 for 30 years at 3.25%

         Loan amount = 300000

          Interest rate=3.25%

          Length = 30 years

Monthly repayment =$1305.62/-

Total repayment =$470023.2/-

Here the lender has more benefit. 30 year mortgage is not so beneficial for the borrower because it’s costly. You will typically pay more than twice as much in interest over the life of the loan with a 30 year loan as with a 15 year one. But many people favor longer loans because their monthly payments are lower.