1. MORTGAGES 101
A COURSE FOR FRONT-LINE EMPLOYEES OF FINANCIAL INSTITUTIONS

2. COURSE
INTRODUCTION
Has a client ever asked you a question
about mortgage loans that left you feeling
stumped?
This course is designed to take some of the
mystery out of mortgage loans so you can
answer basic questions with confidence,
help clients with understanding how their
payments are calculated and how to
recognize referral opportunities.

3. COURSE
INTRODUCTION
At the end of this course is a knowledge
check to see what you learned about
mortgage basics.
Let’s begin!

4. OBJECTIVES
By the end of this course you will be able
to:
• Describe what a mortgage loan is
• Understand who benefits from
mortgages and homeownership
• Explain the different types of mortgages

5. OBJECTIVES, CONT.
By the end of this course you will be able
to:
• Understand key advantages and
disadvantages of each mortgage type
• Describe the parts of a mortgage
payment
• Describe some key factors/costs
associated with mortgage loans

6. What is a mortgage?

7. IN OTHER WORDS…
It’s like an auto loan
…on STEROIDS!

8. Who benefits from mortgages?
EVERYONE!

9. SOCIAL BENEFITS
It isn’t just the economy that benefits.
There are well-documented social benefits
homeownership has on our communities.
Here are a few:
• Lower teen pregnancy rates of
homeowner’s daughters
• Lower crime
• Greater educational success of children
of homeowners

10. TYPES OF MORTGAGES
• Fixed Rate (or Term)
• Adjustable Rate Mortgages (ARMs)
• Less Common Types:
• Jumbo
• Balloon
• Interest-Only

11. FIXED RATE MORTGAGES
• Advantages
-Save money on interest payments by selecting shorter terms, i.e. a 15 year
rather
than a 30 year term
-longer terms mean smaller monthly payments which means more cash
flow for
client
-amortized for a specific term – fixed payments for the life of the loan
A loan that features fixed payments for the life of the loan. Typical terms are 10, 15 and 30
years.

12. FIXED RATE MORTGAGES, CONT.
• Disadvantages
-Typically the interest rate is higher than the initial rate of an adjustable rate
mortgages
-The longer the term the greater the total cost of the loan

13. ADJUSTABLE RATE MORTGAGES (ARM)
• Home loan with an initial fixed interest rate which changes after the specified
period of time.
• The initial fixed rate period is often 5, 7 and 10 years.
• The interest rate could go up or down depending on market conditions.

14. ADJUSTABLE RATE MORTGAGES (ARM), CONT.
Advantages
• Lower interest rates than fixed mortgages initially
• Lower monthly payment during the fixed rate period

15. ADJUSTABLE RATE MORTGAGES (ARM), CONT.
Disadvantages
• When interest rates increase payments increase as well
• Lack of reliable payment amounts

16. LESS COMMON MORTGAGE TYPES
Jumbo
• Home loan for an amount that exceeds conforming loan limits established by
regulation. The loan limit could be $417,000 - $625,000 depending on the area in
the U.S.
• Financed with the same loan programs as non-jumbo loans, i.e. fixed rate and
ARM

17. LESS COMMON MORTGAGE TYPES, CONT.
Balloon
• Home loan where the payments are fixed over a period between 1-7 years, at the
end of which the balance of the loan is due.
• Great option for investors, people who expect a large sum of money (inheritance),
and people who plan to move within the fixed payment period.

18. LESS COMMON MORTGAGE TYPES, CONT.
Interest Only
• Home loan where only interest payment are made during a fixed period of time,
usually between 5-7 years.
• At the end of the initial period, the balance is paid off or refinanced
• Great option for investors

19. Bob comes to your teller window upset that his mortgage payment went up…again! You tell him that you’d
be happy to assist him with this issue and look up his account information. Viewing his profile you see that
he has an Adjustable Rate Mortgage and that he is out of his fixed rate period. Your explanation should
include the following:
When the interest rate on an ARM increase, the payment ____________.
A. goes up
B. goes down
Try Again. Correct!
C. stays the same
Try Again.
Knowledge Check

20. What would you suggest Bob do in order to avoid having his mortgage payments increase in the future?
A. Refinance into a fixed rate mortgage
B. Pay off the loan
Try Again.
You got it! The only real way to
ensure interest rates stay the same
over the life of the loan is to take a
fixed rate mortgage.
C. Make extra payment to decrease his principle
Try Again.
Knowledge Check

21. PAYMENTS
In order to get an understanding of how
mortgage payments are calculated, let’s
watch a short video.

23. MORTGAGE PAYMENTS - PRINCIPLE
• To recap the video, the principle is the amount of money borrowed to purchase
or refinance a home.
Example:
Meet Megan.
Megan is looking for her first home and has a
budget of $100,000.

24. MORTGAGE PAYMENTS - INTEREST
• The money paid to the lender by the borrower expressed as a percentage of the
balance.
Example:
Megan shops around and finds a low
interest rate of 3.25%

25. MORTGAGE PAYMENTS - TERM
• No matter what type of mortgage (fixed
rate, ARM, etc.) there is always a term
component to a mortgage contract that
affects payments.
• The term refers to how long the
payments are spread out over a period
of time.
Example:
Megan chooses a 15 year fixed rate
mortgage. That means, her payments will
be spread out over 15 years.
This leads to the next topic…

26. …AMORTIZATION
Definition – gradual repayment of a loan in
equal (or nearly equal) installments which
include portions of interest and principle
amounts.
-businessdictionary.com
So, amortization is how payments are
calculated over the life of the mortgage
loan.

27. AMORTIZATION EXPLAINED
• This topic can be very difficult to understand. But you don’t have to be a math
whiz to understand the concept.
• Let’s explore Megan’s situation further…

28. MEGAN’S MORTGAGE
• Purchase Price of home =
$100,000
• Interest rate = 3.25%
• Term = 15 years

29. AMORTIZATION
FORMULA
There’s a better way…
A = payment amount per period
P = initial Principle (loan amount)
r = interest rate period
n = total number of payments or periods

30. MICROSOFT EXCEL COMES PRELOADED WITH EASY-TO-USE
TEMPLATES THAT DO THE AMORTIZING FOR US. YAY!!
PAYMENT, Whew!
Plug in the loan
parameters here

31. AMORTIZATION – SUMMARY & KEY POINTS
• In our example, Megan’s mortgage payment
would be $702.67 given the following:
Principle = $100,000
Interest Rate = 3.25%
Term = 15 years
• Megan will pay more in interest payments in the
beginning of the term
• Megan will pay more principle at the end of the
term

32. CLOSING COSTS
When making the decision to buy or
refinance a home, clients should consider
other costs associated with mortgage
loans. Costs associated with applying,
commonly known as “closing costs”.
Let’s view another short video which does a
great job of explaining closing costs.

34. This course covered basics about the following:
• How mortgage is defined
• The different types of mortgages including the advantages/disadvantages of
each
• Payments and how they’re calculated, referred to in the field as amortization
• Closing costs
Let’s check your knowledge about these mortgage basics…
CONCLUSION

35. What type of mortgage loan features fixed payments for the life of the loan?
A. Adjustable Rate Mortgages
B. Fixed Rate Mortgages
Try Again.
Correct!
Knowledge Check

36. Which of these is NOT a social benefit of homeownership mentioned in this course?
A. Lower teen pregnancy rates of homeowner’s daughters
B. Lower crime
Try Again.
Correct!
C. Greater educational success of children of homeowners
D. Higher property values
Try Again. Try Again.
Knowledge Check

37. _____________________ is defined as the gradual repayment of a loan in equal (or nearly equal)
installments which include portions of principle and interest amounts.
A. Equal Payment Plans
B. Amortization
Try Again. Correct!
C. Revolving
Try Again.
Knowledge Check

38. What does the term “principle” refer to when describing mortgage payments?
A. The total cost of the loan
B. The initial amount borrowed at the beginning and the remaining balance during the life of the
loan.
Try Again. Correct!
C. Neither A or B
Try Again.
Knowledge Check

39. Interest is the money paid to the lender by the borrower and is expressed as a __________ of the balance.
A. percentage
B. ratio Try Again.
Correct!
C. fraction Try Again.
Knowledge Check

40. Less common mortgages like balloon and interest-only are great options for ___________________________.
A. Investors
B. People looking for their forever home
Try Again.
Correct!
C. People who move often and likely won’t stay in their home beyond the fixed payment
periodD. A and C
Try Again. Try Again.
Knowledge Check

41. True or False: The interest rate on an ARM can only go up after the initial fixed rate period.
A. True
B. False
Try Again. Correct!
Knowledge Check

42. True or False: Term refers to the length of time a borrower takes to pay back the amount
borrowed.
A. True
B. False
Try Again. Right on!
Knowledge Check

43. True or False: In order to discuss how mortgage payments are calculated with clients you MUST be
able to calculate them using the formula.
A. True
B. False
Try Again.
Correct! You can find easy-to-
use templates in Microsoft Excel.
Knowledge Check

44. True or False: If a person opts for a 15 year fixed rate mortgage they will pay less in interest
payments over the life of the loan.
A. True
B. False
You’ll get it
next time.
Nice job!
Knowledge Check

45. Congratulations! You have completed this course.
Please select forward for a list of references so you may
continue learning about mortgages on your own.
Also, please contact the training department to inform
someone that you’ve completed the course. They will email
you an evaluation form.

46. Search the following websites for topics covered in this course or let your curiosity take you in
another direction:
www.bankrate.com
www.mortgagecalculator.org
www.youtube.com
www.quickenloans.com
Further study: