《金融市场与机构 Jeff Madura》ch09.pptVIP

9 Mortgage Markets Chapter Objectives Describe characteristics of residential mortgages Describe the common types of creative mortgage financing Explain the role of the federal government in supporting the development of the secondary mortgage market Relate the development and use of mortgage-backed securities Residential Mortgage Characteristics Federal and private insurance guarantees repayment in the event of borrower default Limits on amounts, borrower requirements Borrower pays insurance premiums Federal insurers include Federal Housing Administration and Veterans Administration Residential Mortgage Characteristics Fixed rate loans have a constant, unchanging rate Interest rate risk can hurt lender rate of return If interest rates rise in the market, lender’s cost of funds increases No matching increase in fixed-rate mortgage return Borrowers lock in their cost and have to refinance to benefit from lower market rates Residential Mortgage Characteristics Fixed monthly payment includes Interest owed first Balance to principal Interest on the declining principal balance Calculating monthly payment Principal borrowed = PV Number of months to maturity = years ? 12 = N Rate/12 = I Calculate PMT Residential Mortgage Characteristics Calculate the monthly payment for a $330,000 home. The new owner has made a $70,000 down payment and plans to finance over 30 years at the current fixed rate of 7%. Residential Mortgage Characteristics Calculate the monthly payment for a $330,000 home. The new owner has made a $70,000 down payment and plans to finance over 30 years at the current fixed rate of 7%. $330,000 – $70,000 = $260,000 PV (original investment of the financial institution) 30 x 12 = 360 N; 7/12 = I; Calculate PMT Residential Mortgage Characteristics Calculate the monthly payment for a $330,000 new home. The new owner has made a $70,000 down payment and plans to finance for 30 years at the current fixed rate of 7%. $330,000 – $70,000 = $260,000