FINE 445 Chapter Notes - Chapter 5: Fixed-Rate Mortgage, Interest Rate Risk, Mortgage Loan
Document Summary
In the previous chapter, significant problems regarding the ability of borrowers to meet mortgage payments and the evolution of fixed interest rate mortgages with various payment patterns were discussed. These inadequacies stem from the fact that although payment patterns can be altered to suit borrowers as expectations change, the cam, cpm, and gpm are all originated in fixed interest rates and all have predetermined payment patterns. Neither the interest rate nor the payment patterns will change, regardless of economic conditions. A variety of mortgages are now made with either adjustable interest rates or with variable payment provisions that change with economic conditions. Most savings institutions had been making constant payment mortgage loans with relatively long maturities, and the yields on those mortgages did not keep pace with the cost of deposits. One concept that has been discussed as a remedy to the imbalance problems for savings institutions is the price level adjusted mortgage (plam).
