** There are 2 response. Write a 100 word response for EACH response.
Most individuals purchasing a home will require a loan for the mortgage, which is a written instrument that gives the creditor an interest in, or lien on, the purchasers or debtor’s real property that is used as security for payment of a debt. The Debtor (mortgagor) will sometimes make a down payment as part of the payment towards the purchase of a home, and the creditor (mortgage) offers various options that work best for their situation, ranging from fixed or variable interest rates that apply to the different options.
Option 1 is a Fixed Rate Mortgage that is based on debtor’s credit history, credit score, income, and debts. To qualify the borrower qualifies if the monthly payments do not exceed 28 percent of the individual’s monthly gross income, including principal, interest, taxes, and insurance. If all qualify, the rate of interest attached to the mortgage is unchanging.
Option 2 is an Adjustable Rate Mortgage (ARM), the best appeal is that the payments are normally lower because the borrower is willing to take the risk of not knowing the interest rate after a period of time. At the initial purchase, the interest rate is fixed and unchanged for one – three years. After this period expires, the rate fluctuates based on percentage points or margin to an index that is the government interest rates.
Option 3 an Interest-only mortgage, is when a borrower monthly payment excludes principal payment for a specified period of time, maybe five years. The borrower pays interest only and will have a fixed or adjustable rate. After the interest-only period ends, the monthly payments are larger than if the loan had been fully amortized from the origination of the loan (chasefinancial.com).
Option 4 is a Subprime mortgage is used for those individuals that may not have the best credit rating and who do not qualify for the conventional loan. The borrower has deemed a risk, and therefore the interest rate is higher than a conventional loan rate (Kagan, 2018). The rate is determined by the borrowers’ credit score, which is most likely below 600, and have various delinquencies on their credit report. From a Christian standpoint, I do not think this type of mortgage is unethical, because God sometimes gives us opportunities for betterment, and if the individual makes the required payments on time eventually their credit score will be better and in turn can either sell the home or refinance with a better option that is more beneficial.
Kagan, J., (January 29, 2018). Subprime Mortgage. Retrieved from https://www.investopedia.com/terms/s/subprime_mortgage.asp (Links to an external site.)
Miller, R.L., & Jentz, G.A. (2016). Fundamentals of Business Law today: Summarized Cases (10th Ed.). Mason, OH: Thomson-West Publishing. ISBN: 9781305075443
The Truth in Lending Act (TILA) of 1968 is a United States federal law created to promote the informed use of consumer credit, by having to provide disclosures that pertain to the terms and cost to standardize the way that costs are associated with borrowing and are calculated and disclosed (Investopedia). The disclosures emphasis is not geared to the adage, “let the buyer beware,” but more so, “let the seller disclose.” The act regulates most creditors such as, banks, credit unions, finance companies that offer car loans, credit card companies, and home mortgage lenders. Therefore, it covers most credit transactions, such as car purchases and leases, home mortgages and refinancing, personal loans and lines of credit, credit cards, private student loans, and payday loans. When a loan of the sort is taken out, the TILA Act stipulates that the terms; APR and finance charges, etc., should be disclosed clearly, in a meaningful sequence, in writing on a form the consumer may keep (www.fair-debt-collection.com).
The four elements of the Truth in Lending Act are: (1) to have the date of the transaction, (2) to have the customer’s name and address, (3) to obtain the customer’s account number and (4) an acknowledgment of receipt (Wikipedia.org). The disclosures must contain finance charges, interest and any legal cost, total amount financed, number of payments scheduled, due dates and amounts over the loan term. The TILA gives debtor rights and creditor obligations when the credit agreement is established. The act protects the consumer from fraud, predatory lending, and misrepresentation of terms and requires disclosures stating the terms affiliated with the agreement. The act also grants the debtor the option to cancel within a certain time frame allowed by law (Assad, A., n.d.).
Assad, A. n.d., retrieved from https://smallbusiness.chron.com/truthinlending-law-require-creditors-debtors-14304.html (Links to an external site.)