Mortgages, Financial Management

A mortgage may be defined as a pledge of property to secure a debt payment; in this context, we will use the term property to mean real estate. If the mortgagor (say, homeowner) fails to pay the lender (the mortgagee), the lender can foreclose the loan, seize the property and sell it in order to realize his dues.

Depending upon the terms of mortgage agreed upon between the lender and the borrower, mortgages can be classified into traditional and non-traditional mortgages.

Before discussing the features of the two mortgages, we will take a look at some of the important aspects of all mortgages. The lender usually examines the creditworthiness of a borrower by eliciting information on the following:

  • Details of the amounts outstanding on any other loans taken by the borrower.

  • Details of monthly/annual income of the borrower from all sources; and the net worth of the borrower.

The lenders in the US follow two basic rules of thumb to adjudge the adequacy of the income for paying the obligations under mortgage:

Rule 1: The total mortgage payment (principal and interest) should not exceed 25% of the borrower's total income less all payments owed to other obligations.

Rule 2: Total mortgage payments plus other housing expenses such as taxes, insurance, utilities and normal maintenance costs should not exceed 33% of the borrower's total income less all payments owed to other obligations.

It must be understood that the above percentages are not always rigidly applied - the percentages may be lowered if the lender is otherwise convinced of the borrower's net worth and liquidity and if the interest rates rise to a high level in tight money situations; also lenders do lower the percentages to maintain a certain level of business.

Posted Date: 9/8/2012 7:24:50 AM | Location : United States

Related Discussions:- Mortgages, Assignment Help, Ask Question on Mortgages, Get Answer, Expert's Help, Mortgages Discussions

Write discussion on Mortgages
Your posts are moderated
Related Questions
Financial Reports: Each person has their own perception on what a particular financial report should contain, and invariably in what they consider to be the important factors w

Q. Describe the Functions of Controller? (1) Planning and budgeting: - It comprises capital expenditure planning, profit planning, budgeting, inventory control, sales forecasti

Do you guys provide Trend Analysis assignment help? I need writing a report on Trend Analysis and it is about 2000 words. Let me know. I need to buy your solution.

Explain the meaning of Buy-ins This  is  when  third  party  management  team  make  a  takeover  bid  and  then  run  business themselves. Finance sources are same as to buy-o

Implementing Systems Effectively: Much of the accounting process has been taken over by office automation systems. Whereas once the vast majority of bookkeeping and reporting t

The approaches that Blin could accept regarding the relative proportions of long- and short-term finance to meet its working capital needs have been described as moderate, conserva

please give us the formula of price of equity shares of walter''s and gordon''s model

Q. What is Emerging Issues Task Force? Emerging Issues Task Force (EITF) - Assists FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and provides guidance on early identification of

Q. Explain about Inventory Turnover Ratio ? Inventory Turnover Ratio: - Definite items of inventory are slow moving. It signifies that their consumption is quite slow and capit

Exchange of Physicals: A trader can also complete the futures contract by engaging in exchange of physicals. In this method, the parties agree to exchange cash and the commodit