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Owning a home is one of the core tenets of the American dream. As of , nearly 64% of Americans owned their home indicating just how important this asset is to American culture. Fueling the recent rise in homeownerships rates are record low interest rates. These record low interest rates have encouraged a record number of Americans to engage within the homeownership process. Low interest rates allow more individuals to borrower for the purchase of a home. With lower interest rates, consumers can afford much higher home prices as their monthly debt service payments will be low. Likewise, those who already own a home are able to refinance their home if they are paying a higher interest rate to begin with. Each of these elements have fueled a very robust mortgage market that has persisted even throughout the pandemic.
As the article indicates, consumers chose mortgage rates in an effort to minimize costs and reduce their overall debt burden. A reduction of cost is seen as a benefit as it allows consumers to better service their mortgage payment in the event of an unforeseen event or life changing circumstance. Unfortunately, as the article indicates, many consumers have not conducted their full due diligence into certain, more esoteric financing structures. One such structure is that the adjustable rate mortgage. This...…that is best suited for their individual needs (Alexander, 2002).
From the article, I learned that financial knowledge is not a discipline that should be outsourced to others. All individuals should look to learn and improve their overall financial acumen due primarily to its importance to the functions of their lives. Likewise, it is important to understand all the financial products a person uses. Although unrelated to the article, investments such Cryptocurrency and non-fungible tokens should be avoided if you do not understand the merits and nuances behind the product. Likewise esoteric financial products such as adjustable rate mortgages and others complex products should be avoided if you dont understand their value…
References
1. Abrahams, S.W. (1997) The new view of mortgage prepayments: insights from analysis at the loan-by-loan level, J. Fixed Income 7 (2): 8–21.
2. Alexander, W.P., S.D. Grimshaw, G.R. McQueen & S.A. Slade (2002) Some loans are more equal than others: third party originations and defaults in the sub-prime mortgage industry, Real Estate Economics, 30 (4): 667–97
Mortgage Fraud If a rash of armed bank robberies swept across America next year, and if in these robberies criminals absconded with $30 billion dollars, one may be certain that a public panic would ensue. The banking system would likely be changed forever. If thousands of armed thugs went rampaging across the nation forcing people out of their homes, into the streets, and then destroying the properties, leaving the occupants homeless
That is, if the interest rates rise to the point that the monthly mortgage payment does not cover the interest due, any unpaid interest will be added to the loan balance, so the loan balance increases. However, one also has the option to pay the minimum monthly payment, or the fully amortized amount due. The advantage of negatively amortizing loans is that one can control cash flow with a relatively
Mortgage Refinancing There is a spurt of mortgage refinancing activity in recent times, thanks to interest rates remaining low and more or less consistent over a significant time horizon, appreciation of house prices and the easier refinancing options available in the market. This paper attempts to trace the various issues that influence the homeowner's decision to refinance. The pros and cons of 30-year mortgage vis-a-vis 15-year mortgage are discussed from different
Even worse, the entire process of due diligence with respect to qualifying potential mortgagees carefully to avoid bad risks and of appraising property as accurately as possible dissolved by virtue of the immediate and routine transfer of mortgage instruments to third parties. Realtors began encouraging borrowers to misrepresent their financial information as well as the value of their intended property acquisitions, further inflating the so-called "housing bubble." More importantly, the
The 30-year provides simplicity and a sense of security for the buyer which an ARM with its potential for rate changes may not. For now the 30-year is here to stay as "Fannie, Freddie and other federal programs now support roughly 90% of new mortgage loans because lenders cannot raise money for mortgages that do not carry government guarantees" (Appelbaum, B. March 4, 2011. P.1). If the government does
Interest rates will be lowered reaching 3.4% in 2011 and borrowers won't have to begin repayments until they are making about $15,000." (Education Portal, 2007) Furthermore, the effectiveness of this bill is questioned because after 2011 interest rates will quickly climb on these loans again. The work entitled; "Student Loan Lenders Creating a New Credit Bubble" states of investors, that they are: "...clamoring to purchase bundled student loans. According to