A first mortgage refers to a home loan that has first-priority lien against a property, making the lender the first in line for claims against it should the borrower default.
This lien can only be removed after the loan against property is fully repaid.
From the business perspective of a lender, the goal or best case scenario is always to be the first mortgage.
Private mortgage insurance (PMI) refers to mortgage insurance offered by private companies.
The main distinction is to describe mortgage insurance not provided by government agencies under FHA and VA.
In the loan market, lenders who underwrite mortgages that exceed 80% loan to value requires the borrower sign up for PMI.
A shared appreciation mortgage is a home loan in which the lender and borrower come into agreement that the latter will give up part of the property’s future appreciation in value to the former, and in return obtain a lower interest rate.
For example, a house is purchased for $200,000 at market value with a loan to value of 80% equating to $160,000. The agreement between lender and borrower is that in exchange for a lower mortgage rate, the borrower would give one-third of the property’s appreciation over the next 8 years.
At the end of 8 years, the loan balance becomes $120,000 while home value rises to $230,000. Out of this increase in value of $30,000, $10,000 would be the lender’s share.
The interest cost (IC) of a loan is a detailed measure of loan cost to the borrower that also takes into account the critical element of time as a variable.
For a mortgage, the loan amount after deducting all upfront fees including points is the cash received upfront.
Interest cost takes into account all the payments that will be made by the borrower over the life of the loan as an expression to the cash received upfront.