Dynamics of Mortgage Loan: Based on Client Needs

Dynamics of Mortgage Loan: Based on Client Needs

Calculate the LTV for this home if they were to use a conventional mortgage and explain the significance of your findings.

Loan-to- Mortgage ratio=Loan needed/Value of the property.

The total value of home =$289 000

Down payment available(Deposit)=289 000-57000

=$232 000(Loan Value)

Therefore, Loan to Mortgage Ration=232 000/289 000

= 80.28%

The loan is needed to finance 80.28% value of the house to be bought because the available deposit can only finance 19.72% of the total value.

Compare the mortgage options and recommend a mortgage option that would fit Henri and Lila’s needs based on the scant information you have.

There exist two financing options when a client needs to purchase a home, either through cash, loan financing, or a partial mix of the two. Coming up with the best mortgage type is a big tide for the most home buyer, especially when the mortgage is to spread over a long time hence a need to factor in all criteria to make sure the best decision is made.

When looking for a mortgage that meets the buyers’ needs and budget, a buyer has two main criteria to consider. They include time duration -15-year mortgage,30-year mortgage, or 40year mortgage) and the nature of interest -fixed or adjustable (Bodine, Alicia, 2019). However,  to make our clients’ decision, we are going to narrow our options on the nature of interest. In essence, the client is in a position to go for fixed interest mortgage loans or Adjustable interest mortgage loans.

Fixed mortgage Loans

Existing mortgage terms determines how fast you build equity in your purchased house ( Renuart E. 2012). The mortgage terms with reference to the repayment period determine how the lender will price the loan and its interest rate. For fixed loans, the buyer chooses to have an unchanging interest rate the whole of the repayment period, which can be between 10 years to 40 years. If the buyers are in a position to pay monthly installments, a shorter period probably between 10 to 20 years will be a great option.

Fixed mortgage, especially in a short period of payment, implies that the borrower will have to make high monthly installments compared to the adjustable mortgage spread over an extended payment period such as 30 years to 40 years.

Adjustable Mortgage Loans

In most cases, Adjustable Mortgage rates hold two phases of interest rates; a fixed interest rate within the first 1o years and an adjustable-rate in the remaining period as long as the mortgage loan has an uncleared balance (Renuart E.,2012). An adjustable mortgage loan is subject to market fluctuations. This type of loan has relatively lower rates of interest doing the early years compared to fixed-rate loans, and therefore the buyer can take advantage and repay the whole amount during this period. In most cases, interest is based on reducing balance, and so the more the principal amount is reduced, the less the interest rate.This type of mortgage loan is suitable for a buyer who needs to put other financial needs I lace as he or she has time to plan and plan well. However, this mortgage can be way expensive, especially when market rates go beyond expectation, and most buyers are not financially prepared to handle such a boom in market capping.

Concerning Henri and Lila’s mortgage needs and their financial situation, I would recommend them for yet a 15 year fixed interest mortgage loan. This type of loan should be conventional to make sure the rights of the lender and borrower(buyers) are well protected against every possible violation.

Explain the pros and cons of selecting whatever mortgage you recommend to them.

This type of mortgage loan will demand repetitive installments in equal time, and as a result, Henri and Lila will have to plan well on their budgeting and payment. This option will enable them to factor other financial goals, such as saving for business emergencies and retirement. Also, it promotes prudence and accountability of the income they derive from their income-generating activities. The payment principal plus interest is less compared to a long term mortgage loan probably from 30years t 40 years.

However, this type of loan is risky if the buyers don’t have an assured source of income to keep up with the monthly payments, the interest is relatively high in the short run, ( Bodine, Alicia, 2019).

References

Best fixed-rate mortgages: two, three, five, and ten years”. The Telegraph. 26 February 2014. Retrieved 10 May 2014

Bodine, Alicia (April 5, 2019). “Definition of Mortgage Curtailment.” budgeting.thenest.com. Certified Ramsey Solutions Master Financial Coach (Update

Renuart, E. (2012). Property Title Trouble in the Non-Judicial Foreclosure States: The Ibanez Time Bomb?. Albany Law School