Package Mortgage & Home Equity Credit Line Loan
Package mortgage
A package mortgage allows home buyers to pledge household items of personal property, in addition to the real estate, as security for a loan. For instance, lending institutions may allow items such as ranges, refrigerators, dishwashers or air conditioners to serve as security, thereby allowing the home buyer to finance major appliances over the term of the loan at relatively low mortgage interest rates. This practice allows lenders to increase the amount of a loan with no added administrative costs and little additional risk. It allows buyers to purchase home appliances and other major items of equipment they may otherwise might not be able to afford.
Home equity credit line loan
By far the fastest growing form of mortgage loan in recent years has been the credit line home loan. It is a second mortgage loan that permits any number of draws or balance reductions, subject to a maximum of 75% to 80% of house value, including the first mortgage loan. The monthly payment typically is the greater of a fixed percentage of the current balance, usually 1 %% to 2%, or a modest dollar minimum. The interest rate is variable, usually prime (or another short term interest rate) plus one and a half to two percent. Draws against the mortgage usually are by check, though in some cases credit cards access the credit line.
Categories: Admin Note Tags: Package Mortgage & Home Equity Credit Line Loan
Blanket & Reverse Annuity Mortgage
Blanket mortgage
A blanket mortgage covers more than one parcel of land. Developers of subdivisions employ this type of mortgage, which permits small portions of the land (residential lots) to be paid off and released from the mortgage. This clause is known as a release clause, since the remainder of the land continues to be held as security for the loan. The percentage of the original mortgage that is released is usually smaller than the pro rata dollar amount. For example, the developer has a note for $100,000 on a subdivision with 20 lots. The lender will usually require more than lDOth of the mortgage dollar amount to be paid before one lot is released.
Reverse annuity mortgage
The reverse annuity mortgage was conceived as a way to enable older homeowners to liquidate and consume the equity “locked up” in their home. As the name suggests, in it’s simplest form the homeowner would receive a regular disbursement from the lender, secured by a mortgage. The regular disbursements and interest accruing against them accumulate eventually to some maximum loan balance. The major problem with this simple RAM is that the homeowner may outlive the time when the maximum loan is reached. While various solutions to this risk are being
explored, there is yet to be a significant use of the RAM in the United States. Prudence requires that the loan be made to a homeowner late in life, and for a fairly small percentage of the property’s.
Categories: Admin Note Tags: Blanket & Reverse Annuity Mortgage
Participation Mortgage
A participation mortgage is a loan agreement that provides for a lender to receive part of the income fiom an investment in addition to the interest payments. Participation mortgages became popular during periods of high interest rates and are used by lenders to increase their yields. The participation feature enables them to share in the expected success of income-producing properties. It also, protects the borrower fiom abnormally high payments, if income projections are not realized. The participation can be a specified percentage of gross or net income, a share of proceeds at sale, or both.
The use of a closely related term, mortgage participation, occurs when the two or more lending institutions combine their funds to finance a real estate project. For example, a lender does not want the risk of a project of the magnitude for which an investor is seeking a loan. In this case the “primary” lender may call upon another lender to “participate: in this loan, thereby creating a participation. For example, an investor needs $100 million to purchase a large hotel complex. The lending institution to which the developer applies for a loan may not be able to lend that much money. By obtaining one or more “participants,” the original lender is able to obtain the money needed for the investor. In return, all lenders receive evidence of debt from the borrower, as well as an instrument pledging the property as security for each lender’s note.
Categories: Admin Note Tags: Participation Mortgage
