Mortgages

A mortgage is a security for a loan on the property you own. People often get mortgages when they buy a home, so they dont have to come up with the full purchase price all at once. The loan is repaid in regular mortgage payments, which are usually blended payments. This means that the payment includes the principal (amount borrowed) plus the interest (the charge for borrowing money). The payment may also include a portion of the property taxes. A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan. Basic Concept: Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential and commercial property (see commercial mortgages). Although the terminology and precise forms will differ from country to country, the basic components tend to be similar: Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible. Mortgage: the security interest of the lender in the property, which may entail restrictions on the use or disposal of the property. Restrictions may include requirements to purchase home insurance and mortgage insurance, or pay off outstanding debt before selling the property. Borrower: the person borrowing who either has or is creating an ownership interest in the property. Lender: any lender, but usually a bank or other financial institution. Lenders may also be investors who own an interest in the mortgage through a mortgage-backed security. In such a situation, the initial lender is known as the mortgage originator, which then packages and sells the loan to investors. The payments from the borrower are thereafter collected by a loan servicer.[3] Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size. Interest: a financial charge for use of the lender's money. Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan. Mortgage Loan Types: There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation and legal requirements. interest: Interest may be fixed for the life of the loan or variable, and change at certain predefined periods; the interest rate can also, of course, be higher or lower.

 term: Mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization. payment amount and frequency: The amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid. prepayment: Some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment. The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable-rate mortgage (ARM) (also known as a floating rate or variable rate mortgage). In some countries, such as the United States, fixed rate mortgages are the norm, but floating rate mortgages are relatively common. Combinations of fixed and floating rate mortgages are also common, whereby a mortgage loan will have a fixed rate for some period, for example the first five years, and vary after the end of that period. In a fixed rate mortgage, the interest rate, and hence periodic payment, remains fixed for the life (or term) of the loan. Therefore the payment is fixed, although ancillary costs (such as property taxes and insurance) can and do change. For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan, In an adjustable rate mortgage, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to some market index. Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be, for example, 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve. Repaying of Mortgage: Capital and Interest Interest Only No capital or interest Interest and partial capital Variations

Types of Mortgages 1. Simple Mortgage 2. Mortgage by Conditional Sale 3. Usufructuary Mortgage 4. English Mortgage 5. Mortgage by deposit of title of deeds 6. Anomalous mortgage 1. Simple Mortgage In a Simple mortgage, the possession of the mortgaged property is not transferred from mortgagor to the mortgagee. If the mortgagor fails to repay the loan, the mortgagee has the right to sell the property and recover the loan from the sale amount. 2. Mortgage by Conditional Sale Under such Mortgage, the mortgagor apparently sells the property to the mortgagee on certain conditions 1.On failure to repay the mortgage money before a certain date the sale shall become absolute,or 2.On condition that on such repayment of mortgage money the sale shall become invalid,or 3.On condition that on such repayment the mortgagee shall retransfer the property. In such case, the mortgagee is a "mortgagee by conditional sale". 3. Usufructuary Mortgage In a usufructuary Mortgage, the possession of the mortgaged property is transferred to the mortgagee. The mortgagee receives the income from the property (rent, profit, interest, etc) until the repayment of the loan. The title deeds remain with the owner. 4. English Mortgage In an English Mortgage 1.The mortgagor binds himself to repay the borrowed money on a certain date. 2.The mortgagor transfers the property absolutely to the mortgagee. 3.But such transfer is subject to the condition that the mortgagee will retransfer the property on repayment before the agreed date. 5. Mortgage by deposit of title of deeds In such mortgage, the mortgagor delivers the title document of the property to the mortgagee with an intention to create a security thereon. Such mortgage is valid in towns of Kolkatta, Mumbai and any other town as the State Government may notify by publication in Official Gazatte 6. Anomalous mortgage Anomalous mortgage is a combination of different types of mortgages.

Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds. Types of Interest: 1. Simple Interest Simple interest is calculated only on the principal amount, or on that portion of the principal amount that remains unpaid. The amount of simple interest is calculated according to the following formula:

where r is the period interest rate (I/m), B0 the initial balance and mt the number of time periods elapsed. To calculate the period interest rate r, one divides the interest rate I by the number of periods mt.
2. Composition Interest Rates In economics, interest is considered the price of credit, therefore, it is also subject to distortions due to inflation. The nominal interest rate, which refers to the price before adjustment to inflation, is the one visible to the consumer (i.e., the interest tagged in a loan contract, credit card statement, etc.). Nominal interest is composed of the real interest rate plus inflation, among other factors. A simple formula for the nominal interest is: Where i is the nominal interest, r is the real interest and 3. Cumulative Interest Rates is inflation.

The calculation for cumulative interest is (FV/PV)-1. It ignores the 'per year' convention and assumes compounding at every payment date. It is usually used to compare two long term opportunities
1. Reviewing financial statement 1. Balance sheet = Assets = Liability + Equity 2. Income statement = Revenue, Expenses, Profit before Tax, Inco. Tax and Profit after Tax 3. Cash flow statement to understand the movement of cash in given period 4. Check the statement of stockholders or equity to give the details of accounts 5. Check the narrative explanation of whole financial statement 2. Configuring financial data and documents in the ERP system 3. Performing various verifications to determine authenticity of data

4. Detecting red-flags in financial documents As with asset misappropriation, there are also specific red flags of financial statement fraud that are present in many of the common varieties of such accounting violations. Examples: Complex or unstable organizational structure. Unusually intricate or confusing financial transactions with third-party entities. Sudden or gradual increase in gross margin compared with the companys prior performance, and with industry averages. Cash flows that are negative for the first three quarters and suddenly positive for the fourth quarternot by just a little, but by more than all losses to date. (This scenario is exactly what happened at Enron. It is why Sherron Watkins said, after the companys demise, that if anyone had been paying attention to the cash flows they would have known that Enron's statements were suspicious and/or fraudulent.) Significant sales to companies or individuals whose identity and business track record are questionable. Sudden above-average profits for specific quarters. Executives or board members have direct personal dependence on the companys performance. Conspicuously lax board oversight of top management. 5. Generating final agreements for execution