Financial Markets and Institutions (2-downloads)

Payment

Number

Beginning

Balance of Loan

Monthly

Payment

Amount Applied 

to Interest

Amount Applied 

to Principal

Ending Balance 

of Loan

1

130,000.00

999.59

920.83

78.75

129,921.24

24

128,040.25

999.59

906.95

92.66

127,947.62

60

124,256.74

999.59

880.15

119.43

124,137.31

120

115,365.63

999.59

817.17

182.41

115,183.22

180

101,786.23

999.59

720.99

278.60

101,507.63

240

81,046.41

999.59

574.08

425.51

80,620.90

360

991.77

999.59

7.82

991.77

0

---

330

Part 5 Financial Markets

loan payments made during the first five years, only $5,862.69 is applied to the prin-

cipal. Over the life of the $130,000 loan, a total of $229,850 in interest will be paid.

If the loan in Table 14.3 had been financed for 15 years instead of for 30, the pay-

ment would have increased by about $280 per month to $1,279.59, but the interest

savings over the life of the loan would be nearly $130,000. It is no wonder why so

many borrowers prefer the shorter-term loans.

Types of Mortgage Loans

A number of types of mortgage loans are available in the market. Different borrow-

ers may qualify for different ones. A skilled mortgage banker can help find the best

type of mortgage loan for each particular situation.

Insured and Conventional Mortgages

Mortgages are classified as either insured or conventional. Insured mortgages are

originated by banks or other mortgage lenders but are guaranteed by either the

Federal Housing Administration (FHA) or the Veterans Administration (VA).

Applicants for FHA and VA loans must meet certain qualifications, such as having

served in the military or having income below a given level, and can borrow only

up to a certain amount. The FHA or VA then guarantees the bank making the loans

against any losses—that is, the agency guarantees that it will pay off the mortgage

loan if the borrower defaults. One important advantage to a borrower who qualifies

for an FHA or VA loan is that only a very low or zero down payment is required.