Long-Term Financing Measures


2) Financing
: Financing is the decision of how to pay for both short-term and long-term assets. That helps a determination how much for each term debt and equity the best would be. Long-term debt and Stockholders’ equity are regarded as the parts of Financing.

FHA loans are mortgage loans that are insured by the FHA. These loans are given to lenders approved by the FHA to help reduce the risk involved should borrowers fail to pay their mortgages.

Because debt financing is used in most if not all RE transactions, mortgages are necessary for eliminating uncertainty; Not only for the borrower but the lender as well. The lender can be certain of what risks are involved and this allows them to determine the risk premium in the interest rate. The borrower benefits immensely from the mortgage as it reduces the cost of borrowing, it details financial rights and obligations, and increases chances of a positive outcome.

Home ownership is the American dream! It is one of the most costly purchases an individual or family can make in their lifetime. Some people save until they have cash to purchase however, many people borrow money from a bank or lending institution; when a person borrows money to purchase a home the loan is called a mortgage. The lender is called the mortgagee and the borrower is called the mortgagor; banks have several different types of mortgages: fixed rate mortgage, adjustable rate mortgage, investment mortgage and much more. Borrowers have to undergo the lender underwriting process to show financial capability of repaying the mortgage (Makarov & Plantin, 2013). In this article I will use a fictitious person named “Julianna,” she is in the process of buying her first home at age 30; I will be her lender and will use mathematical procedures to find out what is her down payment, principle, installment payment, points (closing cost), mortgage maturity value and total interest paid.

Mortgage-backed securities are investments packaged by financial institutions for the secondary mortgage market. Investors are able to pay for shares in a bundle of mortgages, and they receive a yield when the mortgages are repaid. These investments tend to be used in a similar fashion as the 10 year treasury bond, and their rates move in tandem. Basically, if the 10 year bond is dropping, mortgage rates tend to do so as well--and vice versa.

Long-term financing means a financing provided to an organization for a period longer than a year. This is done typically for companies who do not have enough capital or for potential home owners. Mortgages are considered long-term loans.

Adjustable-rate mortgages: in simple terms, an adjustable-rate mortgage is when the interest on a loan changes with the market. This sounds nice if the interest rate is

New loan offerings make it easier to buy a home, but harder to pick which mortgage is right for you. The standard 30-year fixed rate mortgage allows predictable payments. If you’re planning on moving quickly, consider an adjustable rate mortgage, which has low

Let's say you loan someone some money say $100,000 at 5% for 30 years. You have a choice to receive the payments plus interest over the 30 year period Or, if you needed that money now for any reason, you could sell the debt to someone else for the balance owed plus a premium for the interest earned on the debt. That way, you get your principal back plus some interest. You could sell your debt for $120,000. The buyer would get the remaining $73,000 interest. Home mortgages are bought as sold (mine has been bought and sold 4x in the past 6

Homes are typically the biggest purchases the average American will make in her lifetime. The average home mortgage requires a down payment equal to 20% of the purchase price. The remaining amount is paid monthly throughout the course of 30 years, on average. This makes the home mortgage a substantial and constant monthly expense for the average homeowner. (Egrungor & Zaman, 3).

The first of these three, fixed rate mortgages, are arguably the simplest and easiest to understand. The idea of the fixed rate mortgage is simple, you are given a set interest rate for a set amount of time. The mortgage payment for a fixed rate mortgage is calculated at the time of mortgage origination and stays that rate for the life of the mortgage (minus tax and insurance fluctuations if included in the mortgage payment). The length of a fixed rate mortgage (as well as other mortgages) can vary widely, from 10 years all the way up to 40. According to the book “Mortgage Confidential”, “a typical ‘spread’ between a 30-year and a 15-year fixed rate is normally about ½ percent”, meaning “if you can find a 30-year rate at 7.00 percent, then a similarly priced 15-year mortgage at most places will be in the 6.50 percent range.” (Reed, 2011, p.157). Adjustable-rate mortgages, like fixed rate mortgages, have a set length, but do not have a fixed interest rate. Adjustable-rate mortgages “can be based on a variety of indexes” and “are set using an index and a margin.” (Reed, 2011, p.149). Simply stated, the interest rate of adjustable-rate mortgages fluctuates with the financial market. The interest rate of an adjustable-rate mortgage will change depending on the type of mortgage. “A one-year adjustable will typically adjust once per year, a six-month ARM will adjust every six months, and monthly ARMs will

Mortgage note: The mortgage note is a lien against the property being referred to. It goes about as protection for the moneylender ought to the borrower default on the credit. The mortgage note likewise portrays the borrower's rights and commitments relating to the mortgage.

Mortgage lending is a major sector with the United States financial market today. “The modern mortgage has only been around since the 1930s, but the idea of a mortgage has been around for a lot longer.” (History of Mortgages, 2016) The literal meaning of the word ‘mortgage’ has Latin roots: ‘mort’ or death and ‘gage’ or pledge. Translated it supports “the idea that the pledge died once the loan was repaid, and also the idea that the property was ‘dead’ (or forfeit) if the loan wasn’t repaid.” (History of Mortgages, 2016) A mortgage is an agreement for the terms of your home loan, technically not the home loan itself. Real estate transactions require written documentation and this is the purpose of a mortgage.

Firstly, interest on debt is tax deductible, therefore, debt is the least costly source of long-term financing as this is a tax saving for the frim. Thus, creditors or bondholders require a lower return on debt as it is considered a reflectively less risky investment. Secondly, the capital structure of a firm is flexible due to debt financing. Ultimately, bondholders are creditors and they do not have voting rights, hence, they are not involved in decision making and business operations. Additionally, the major advantages of equity finance are as follows. Firstly, the capital provided is to finance the businesses short term needs and future projects. Secondly, the business will not have to pay any additional bank expenses such as interest on loans, thus allowing the business to use the money for business activities. Lastly, investors anticipate that the business will develop thus they help in exploring and executing thoughts. Certain sources, for example, venture capitalists and business angel can bring significant skills, abilities, contacts and experience to businesses and they can also provide expertise advice to businesses (Hofstrand,

In the business world companies are always trying to maximize their earning potential by strategically investing in short-term financing. In terms of finance short-term may mean months or even a couple of years. The type of finance method that is used is contingent on the specific needs of the corporation. These methods include trade credit, bank credit, financing through commercial paper, foreign borrowing, and the use of collateral, accounts receivable financing, inventory financing and hedging to reduce borrowing risk.