Partially amortizing constant payment mortgage cpm loans cpm là gì năm 2024

FINS3633/FINS5533 Real Estate Finance Professor Cortés

2019 Term 1

Week 2 Recommended Questions1:

Question 4-1

What are the major differences between the four CPM loans discussed in this chapter?

What are the advantages to borrowers and risks to lenders for each? What

elements do

each of the loans have in common?

CAM - Constant Amortization Mortgage - Payments on constant amortization mortgages are

determined first by computing a constant amount of each monthly payment to be applied to principal.

Interest is then computed on the monthly loan balance and added to the monthly amount of

amortization to determine the total monthly payment.

CPM - Constant Payment Mortgage - This payment pattern simply means that a level, or constant,

monthly payment is calculated on an original loan amount at a fixed rate of interest for a given term.

CAM - lenders recognized that in a growing economy, borrowers could partially repay the loan over

time, as opposed to reducing the loan balance in fixed monthly amounts.

CPM - At the end of the term of the mortgage loan, the original loan amount or principal is completely

repaid and the lender has earned a fixed rate of interest on the monthly loan balance. However the

amount of amortization varies each month.

When both loans are originated at the same rate of interest, the yield to the lender will be the same

regardless of when the loans are repaid (ie, early or at maturity).

Question 4-2

Define amortization. List the five types discussed in this chapter.

Amortization is the process of loan repayment over time. Types of amortization are fully,

partially, zero, negative and constant rates of amortization

Question 4-3

Why do the monthly payments in the beginning months of a CPM loan contain a

higher proportion of interest than principal repayment?

The reason for such a high interest component in each monthly payment is that the lender

earns an annual percentage return on the outstanding monthly loan balance. Because the loan

is being repaid over a long period of time, the loan balance is reduced only very slightly at

first and monthly interest charges are correspondingly high.

Question 4-6

Why do lenders charge origination fees and loan discount fees?

Lenders usually charge these costs to borrowers when the loan is made, or ‘closed’, rather than

charging higher interest rates. They do this because if the loan is repaid soon after closing, the

additional interest earned by the lender as of the repayment date may not be enough to offset

the fixed costs of loan origination.

Question 4-9

What is meant by a nominal rate of interest on a mortgage loan?

Question 4-12

2. Why do the monthly payments in the beginning months of a CPM loan contain a higher proportion of interest than principal repayment?

Loans are borrowed amounts of money by either businesses or individuals for financing an activity or investment. The lender of the loan expects the borrower to repay the borrowed amounts as per the laid down terms which are the loan amount, the term to maturity and the interest rate. A central concept in the loan transaction is the amortization of a loan which implies spreading out the loan payments.

Answer and Explanation:1

Question 1

The term amortization in a business can be used in reference to loans or to assets. In a loan transaction, amortization refers to the...

See full answer below.

Learn more about this topic:

Loan | Definition, Types & Examples

from

Chapter 6 / Lesson 6

Learn about interest-only, amortization, and pure discount loans. Study definitions and examples of each type of loan, and identify their pros and cons.