MORTGAGE

MARKETS
Prof. Sarbesh Mishra
Finance Area, NICMAR
Mortgages and Mortgage
Backed Securities
• Mortgages – Loans to individual or
business to purchase a home, land,
or other real property.
• Mortgages are backed by specific of
real property; if the borrower
defaults on mortgage, the financial
institution can take ownership of the
property.
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Contd….
• Four basic categories of mortgages
are issued by financial institutions:
2. Home Mortgages
3. Multifamily Dwelling Mortgages
4. Commercial Mortgages
5. Farm Mortgages
These mortgages are used to purchase
the respective unit of housing.

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Mortgage Characteristics
Collateral – In mortgage agreement,
the financial institution will place a
lien against a property that remains
in place until the loan is fully paid
off.
Lien – A public record attached to the
title of the property that gives the
financial institution requires the
mortgage borrower to pay up front.

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Contd….
• Down Payment – Financial institution
requires the mortgage borrower to
pay a portion of the purchase price
of the property (a down payment) at
the closing (the day the mortgage is
issued). The balance of the purchase
price is the face value of the
mortgage (or the loan proceeds).

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 Private Mortgage Insurance
• Insurance contract purchased by a
mortgage borrower guaranteeing to
pay the financial institution the
difference between the value of the
property and the balance remaining
on the mortgage.
• Technically the insurance is
purchased by the lender but paid by
the borrower.

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Mortgage Maturities
• A mortgage generally has an original
maturity of either 15 or 30 years.
• FIs find the 15 year mortgage
attractive because of lower degree of
interest rate risk.
• A mortgage is amortized when the
fixed principal and interest payment
fully pay off the mortgage by its
maturity date.
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Contd….
• Mortgage that requires a fixed
monthly interest payment for a 3-5
year period.
• Full payment of the mortgage
principal (the balloon payment) is
then required at the end of the
period.

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Kinds of Mortgage
• Fixed-rate mortgage – A mortgage
that locks in the borrower’s interest
rate and thus the required monthly
payment over the life of the
mortgage, regardless of how market
rate change.

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Contd….
• Adjustable-rate Mortgage – A
Mortgage in which rates are adjusted
as per the market trends which
regularly undergoes corrections,
otherwise referred as Floating rate
mortgage.

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