how does a house mortgage loan work?

[Shukie L]

i know that buyers give money to the lenders in a monthly basis, so does it mean the total cost of the house is paid by the lender to the seller in the first place? if not, can someone explain to me briefly how it works? and what are subprime mortgages?

[yumi]

do you mean a housing loan? or a house as a mortgage/collateral in your loan?

in housing loan, there are different terms and conditions that both the buyer and seller considers. and it all depends on your preferences.

let's say you would like to loan a house worth 1M, with 16% (160,000) interest payable in 10 years with equal monthly amortization.

Computation:
p = 1M
i = 16%
P+I = 1,160,000
1.16M/120 months
= 9,666.67 ---> this will be ur monthly amortization.

that's just the basic computation, since we both dont know if your creditor (seller) has a service charge, or other charges like, fire insurance, transfer of title, etc. if there are other charges, it's in your preference if you would like to pay it in advance or monthly amortized.

in Real Estate Mortgage, the creditor will appraise the value of the house and lot or the house alone if you prefer not to make your lot as a collateral.

there are banks which appraise the house/lot for 50-90% of the face value of the asset.

meaning if your house/lot can be sold at 1M, your appraised value would be 500,000.00 based on 50% appraisal.

meaning you can only loan a maximum amount of 500,000 based on your appraised value. If you give the creditor the title of your house and lot, you are half paid. but the bank will not let you know. this will serve as their security in case that you were not able to pay.

you will get your title from the creditor once you fully paid your account.

[Serge M]

When you buy a house, the seller usually wants to receive the full purchase price. Usually the seller also has a mortgage on the house that must be repaid, and the buyer typically does not have the means to pay the entire price. Therefore, a lender is involved in the transaction. Let's use an example.

S owns a house and owes $50,000 on a mortgage held by lender X. S is selling the house for $100,000. B offers to buy the house for $90,000 and A accepts the offer. B can pay only $10,000 so needs to borrow the remaining $80,000. Lender Y agrees to lend the money.

Lender Y writes a check for $80,000 to the agency handling the transaction. B writes a check for $10,000 to the agency. The agency pays $50,000 to lender X and $40,000 to seller S. Buyer B signs an $80,000 mortgage loan to lender Y and starts making monthly payments.

It can get more complicated. For example, lender Y is willing to lend only $70,000 so seller S agrees to accept a second mortgage for the remaining $10,000. B signs a first mortgage to Y and a second mortgage to S. B makes monthly payments to both Y and S.

A sub prime mortgage is a loan to a buyer who does have the best ability to repay the debt. In the above example, B can only pay $3,000 and has to borrow the remaining $87,000. B can barely afford to make the monthly payments on the mortgage, given his small income. In other words, B is not a prime buyer. Lender Y is taking a lot more risk by lending the money to B, so the mortgage has a higher than normal interest rate, making it even harder for B to repay the debt.

Some sub prime mortgages were arranged with adjustable interest rates. The first few years of the debt, the rate is low and the monthly payments are small. The assumption is that the buyer will be able to earn more in the future or the value of the house will be higher and it can be sold at a profit. Three years later the interest rate is adjusted upward and now the monthly payments become larger, but the buyer is unable to make the larger payment. The housing market is in a slump and it is hard to sell the house for as much as the original price. The buyer might have lost his job, or has high medical expenses due to an accident and does not pay the mortgage for 2-3 months. The lender forecloses on the house in order to sell it and recover the remaining debt. The situation is common today because many banks made sub prime loans and the housing market has become stagnant. Foreclosures are taking place every day and the sub prime owners are losing their houses.