[Guiblast-devel] NUMBER ONE Success System

Tommy Lee noss1233 at gmail.com
Wed Aug 22 07:29:12 EDT 2007


http://www.noss123.com/


The two basic types of amortized loans are the fixed rate mortgage (FRM) and
adjustable rate mortgage (ARM) (also known as a floating rate or variable
rate mortgage). In many countries, floating rate mortgages are the norm and
will simply be referred to as mortgages; in the United States, fixed rate
mortgages are typically considered "standard." Combinations of fixed and
floating rate are also common, whereby a mortgage loan will have a fixed
rate for some period, and vary after the end of that period.

In a fixed rate mortgage, the interest rate, and hence periodic payment,
remains fixed for the life (or term) of the loan. In the U.S., the term is
usually up to 30 years (15 and 30 being the most common), although longer
terms may be offered in certain circumstances. For a fixed rate mortgage,
payments for principal and interest should not change over the life of the
loan, although ancillary costs (such as property taxes and insurance) can
and do change.

In an adjustable rate mortgage, the interest rate is generally fixed for a
period of time, after which it will periodically (for example, annually or
monthly) adjust up or down to some market index. Common indices in the U.S.
include the Prime Rate, the London Interbank Offered Rate (LIBOR), and the
Treasury Index ("T-Bill"); other indices are in use but are less popular.

Adjustable rates transfer part of the interest rate risk from the lender to
the borrower, and thus are widely used where fixed rate funding is difficult
to obtain or prohibitively expensive. Since the risk is transferred to the
borrower, the initial interest rate may be from 0.5% to 2% lower than the
average 30-year fixed rate; the size of the price differential will be
related to debt market conditions, including the yield curve.

Additionally, lenders in many markets rely on credit reports and credit
scores derived from them. The higher the score, the more creditworthy the
borrower is assumed to be. Favorable interest rates are offered to buyers
with high scores. Lower scores indicate higher risk for the lender, and
higher rates will generally be charged to reflect the (expected) higher
default rates.

A partial amortization or balloon loan is one where the amount of monthly
payments due are calculated (amortized) over a certain term, but the
outstanding principal balance is due at some point short of that term. This
payment is sometimes referred to as a "balloon payment" or bullet payment.
The interest rate for a balloon loan can be either fixed or floating. The
most common way of describing a *balloon loan* uses the terminology X due in
Y, where X is the number of years over which the loan is amortized, and Y is
the year in which the principal balance is due.
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