Question

Indicate whether the indicated condition increases, decreases or does not affect the probability of a loan default?

         a. smaller downpayment:

         b. negative amortization:

         c. lower interest rates:

         d. initial rate discount:

         e. charging a discount point:

Answer 1

a)smaller downpayment expands the likelihood of negative home value, and diminishes borrowers motivators to meet home loan installments.
b) Negative amortization happens when the regularly scheduled installments on a loan are lacking to pay the interest gathering on the head. The extra interest cost is added to the loan balance. The expanded loan balance brings about higher interest cost and an expanding loan balance.
C) low interest rates support costs and security estimations of advantages on banks' accounting reports, which thusly change banks' appraisals of probabilities of default, misfortunes on account of default, and by and large instability of bank returns.

D) The initial rate discount is the level of every single extraordinary loan that a bank has discounted after a drawn out time of missed installments. The term initial rate–likewise called punishment rate–may likewise allude to the higher interest rate forced on a borrower who has missed ordinary installments on a loan.

E) Each discount point by and large expenses 1% of the all out loan sum and relying upon the borrower, each point lowers the loan's interest rate by one-eighth to one-fourth of a percent. Discount points are charge deductible just for the year in which they were paid.