Alternative Mortgage Instrument

  

Think: FlexiMortgage. Something a little weird...something a little wild. Like... want teaser rates for a few years then an adjustable for 5 and then for the rest, a fixed at LIBOR plus whatever? This is the mortgage package you want. The "alternative" there is an analog to the equivalent in "lifestyle". Pay 2 1/2 deductible points up front and then bring down your basis rates on the remaining debt a solid chunk.

A NON Alternative Mortgage? The vanilla, Presbyterian, missionary position, 30-year fixed contract that is printed on very white paper.

Related or Semi-related Video

Finance: What Is a Basis Point?124 Views

00:00

finance a la shmoop what is a basis point?

00:05

well one percentage point is a hundred basis points, half a percentage is 50

00:12

basis points, five percentage points is? yeah we're gonna make you do that one on [frowning man talks to camera]

00:17

your own. well the basic idea is that in very large financial transactions those

00:22

involved need highly granular computation grids, and basis points

00:27

divid interest rates much more tightly. if a company borrows three billion

00:31

dollars just noting that the rate is four percent is really vague. it would

00:37

need to be noted as four point zero zero percent. why? because just one basis point [equation on screen]

00:44

i.e. one hundredth of a percent per year on three billion dollars borrowed

00:49

is still a lot of money. that is one basis point on three billion bucks is

00:53

300 grand .so basis points are a real thing in high finance transactions and [smiling man talk to camera]

00:58

okay okay the answer is 500 basis points. yeah all right now you can go back to

01:03

spinning this thingy. [man spins fidget spinner]

Up Next

Finance: What is Adjustable-Rate Mortgage (ARM)?
17 Views

What is an Adjustable-Rate Mortgage (ARM)? An adjustable-rate mortgage is a mortgage that has a changing interest rate. Whatever it changes to is b...

Finance: What is Collateralized Mortgage Obligation (CMO)?
65 Views

What is Collateralized Mortgage Obligation (CMO)? A CMO is a mortgage bond that consists of a large number of different individual mortgages bundle...

Finance: What is Interest Only Mortgage?
17 Views

An interest-only mortgage is a mortgage on which you only pay the rent on money borrowed, rather than on the principal.

Find other enlightening terms in Shmoop Finance Genius Bar(f)