Thursday, September 8, 2011


 What is a Mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The
"mortgage" itself is a lien (a legal claim) on the home or property that secures the promise
to pay the debt. All mortgages have two features in common: principal and interest.

What is a loan to value (LTV)?

  • How does it determine the size of my loan?
  • The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit
  •  For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay, $2,500 as a down payment.
  • The LTV ratio reflects the amount of equity borrowers have in their homes. The higher theLTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.

What types of loans are available and what are the advantages of each?  

Fixed Rate Mortgages: Payments remain the same for the life of the loan


  • ƒ 15-year
  • ƒ 30-year


  • ƒ Predictable
  • ƒ Housing cost remains unaffected by interest rate changes and inflation
  • Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits


  • ƒ Balloon Mortgage: Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically).
  • ƒ Two-Step Mortgage: Interest rate adjusts only once and remains the same for the life of the loan.
  • ƒ ARMS linked to a specific index or margin.

U.S. Department of Housing and Urban Development
451 7th Street S.W., Washington, DC 20410
Telephone: (202) 708-1112  TTY: (202) 708-1455

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