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Link between Borrowers’ Risk and Mortgage Lending

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  1. Introduction
    1. This will be a definition of borrower's risk and residential mortgage lending
  2. Factors that determine borrower's risk
    1. The factors that are used to determine the borrower risk will be discussed in this part of the discussion
  3. Relationship between Borrower's risk and residential mortgage lending
    1. The relationship between borrower's risk and residential mortgage lending will be discussed based on loan, property and borrower information
    2. How does this relationship differ from before and after the global financial crisis
  4. Recommendations and Conclusion
    1. Recommendations for entrepreneurs based on the findings of the research and a summary of the discussion

Borrower risk is defined as the type of risk that borrowers of any financial funds such as loans or mortgages are exposed to when they borrow either large or small amounts of money. Borrower risk mostly occurs when an individual borrows money against property or assets that have a high property value. If the borrower defaults in his unsecured loan repayment, the lender of the loan has the right to force the borrower to sell his property. Borrower risk is also the type of risk that is presented by low or high interest rates on borrowed funds which might make it difficult for the borrower to repay their loan (Strahan 1). Residential mortgage lending refers to a type of loan secured loan borrowed against real property and is usually acquired through the use of a mortgage note. The mortgage note is meant to highlight the existence of the loan when granting a mortgage which will secure the loan for the borrower (Dorsey and Rockwell 44).

Individuals who want to own or build their homes usually obtain financing through residential mortgage lending which can be obtained through a loan. These loans are usually purchased or secured against the property from a financial institution such as a bank or mortgage lending institution. In many countries around the world, individuals who want to build or buy their own homes are usually funded by mortgage loans. Very few individuals have enough savings or liquidated funds which they can use to purchase property or build their own houses. Residential mortgage lending provides such individuals with the appropriate amount of funds that they can use to build their own houses or buy their own property. The five main sources of residential mortgage lending that are used in the primary market include commercial banks, savings and loans associations, credit unions and mortgage companies (Dorsey and Rockwell 44).

[...] This will be a definition of borrower's risk and residential mortgage lending II. Factors that determine borrower's risk A. The factors that are used to determine the borrower risk will be discussed in this part of the discussion III. Relationship between Borrower's risk and residential mortgage lending A. The relationship between borrower's risk and residential mortgage lending will be discussed based on loan, property and borrower information B. How does this relationship differ from before and after the global financial crisis IV. Recommendations and Conclusion A. [...]


[...] The Journal of Real Estate Finance and Economics (2002): 5-32 Dorsey, Megan and Rockwell, David. Financing residential real estate. New Jersey: Rockwell Publishing Company Print Hamel, Gregory. What factors change interest rates? 9 January 2011. Web May 2011 < http://www.ehow.com/info_7748001_factors-change-interest- rates.html> Jacobs, Myles and Anseimo, Thomas. Residential real estate 2008 edition. Illinois: Illinois Institute for Continuing Legal Education Print Kolb, Robert W. Lessons from the financial crisis. [...]


[...] Factors Determining Borrower Risk One major factor that affects the borrower's risk is the interest rates that are charged on borrowed money that has been lent by either a commercial bank, mortgage lending company or any other lending institution. Interest rates are basically defined as the costs that are associated with using the banks money because there is the risk that the borrower will not repay the money in the established time schedule for loan repayments. The lending institutions therefore charge interest to compensate for this risk and these interest rates are usually determined by a variety of factors such as monetary policies and inflation (O'Hara 548). [...]


[...] Recommendations and Conclusion The information gained from this research is useful especially for entrepreneurs and individuals who want to purchase or build their own property as it will help them to determine the type of borrower risk they should adopt when paying off their mortgages. The borrower should study the interest rates charged on loans and mortgages to determine the type of risk that they will pursue when they borrow funds from the lending institutions. Borrowers should also consider the value of property to ascertain the mortgage rates that will be charged on real estate. Works Cited Chiang, Raymond C. Ying-Foon Chow and Ming Liu. Residential mortgage lending and borrower risk: the relationship between mortgage spreads and individual characteristics. [...]


[...] Relationship between Borrower's risk and residential mortgage lending Residential mortgage lending is the main mechanism that used to finance the private ownership of residential and commercial property. Mortgage loans are usually structured as long term loans because of the periodic payments that the borrower has to make on the mortgage which is similar to that of an annuity. Mortgage loans are usually calculated to reflect a repayment period of between ten to thirty years within which time the borrower is meant to complete their payments. [...]

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