When you acquire a mortgage, the lender divides the repayment schedule into several monthly installments over a fixed period. Amortization is the process of spreading out the mortgage over multiple years and into a series of fixed payments. The total mortgage amount, including the principal balance and interest, is supposed to be paid off with the last installment.

As a borrower of an amortized mortgage, you need to repay a specified monthly amount that pays off a portion of both the principal and interest. After every installment, the total loan balance decreases and finally gets paid off with the last payment.

For example, if you obtain a $20,000 amortized mortgage for five years, the lender will divide it into 60 monthly installments, including the principal and the interest amounts. Presume you need to pay approximately $377 per month and respectively $294 and $83 go into squaring off the principal and interest. Then, it will be $295 and $82 respectively in the next month. Over the loan term, the amount of principal payment will increase, and the interest will decrease (although the monthly installment will be the same).

At Global Mortgage Group, you can enjoy an amortization period longer than the mortgage term in the case of commercial loans. For instance, if you take a loan for ten years, the amortization period could be 30 years meaning the monthly installment amount will be similar to a 30-year loan.

If you are to repay this amount over 120 months at $1,000 per installment, the rate will continue for 119 months. In the last month, you will pay the remaining balance ($81,000 in this case) by one balloon payment.

Amortization is available on fixed-rate mortgages and home equity, personal, and auto loans. You won't get this facility on credit cards and interest-only loans.

Assets refer to a wide variety of items you own that have a monetary value. When you apply for a mortgage, the lender looks into your asset inventory and determines their cash value to make sure that you are capable of returning the loan despite facing financial hardship, such as a job loss, during the repayment period.

There could be various asset types, including:

● Money, savings and checking accounts, certificates of deposit (CDs), and other similar sources — cash and equivalent to cash

● Tradable stocks, bonds, or something that can be converted to cash without dropping their actual price — liquid assets

● Lands, vehicles, antiques, business property, and anything that has monetary value but cannot be converted into cash quickly and may lose some of their value in the conversion process — fixed assets

● Investment money that is lent for interest, including government bonds, securities, and any type of investment money that yields interest — fixed-income assets

● IRA, 401(k) accounts, mutual funds, or anything that secures your ownership in a company — equity assets

You can also categorize them into tangible (physical) and intangible (nonphysical) assets. The lender assesses your positive net worth, indicating your assets have more value than your liabilities. It also helps establish your debt-to-income ratio.

To do the required evaluations, Global Mortgage Group requires only an International Credit Report, Accountant Reference, and some paper documents verifying your funds.

Escrow refers to a financial account in which the funds are managed by an intermediary like a law firm or dedicated escrow company on behalf of the two parties committed to a dealing or transaction.

The neutral third party won't release the funds until the deal is complete.

The use of escrow accounts is quite common in real estate dealings, but it's a valid means of keeping money on hold under a neutral party for any transaction.

During a home buying process, the first time you will need to use the escrow account is when making the earnest money deposit to reflect your intent of purchasing to the seller. You can get that money back if the appraisal returns the home's value lower than the sales price or the home inspection finds serious issues with the home.

If you purchase a home on loan, your mortgage lender will ask you to put some money into an escrow account for paying the homeowners' insurance premiums and property taxes. The provider uses money from this fund to pay tax bills and insurance premiums on behalf of the homeowner. It ensures that the bills are paid on time.

Every mortgage provider will do an escrow analysis each year because the rates of the insurance premium and property taxes are not fixed. This analysis ensures there are adequate funds in the account for paying these bills over the next year. The lender will send you a statement after each yearly review. There could be a shortage (not enough funds to cover the expenses) or overage (extra funds than necessary) in the account.

Setting up an escrow account is mandatory in any real estate transaction.

An appraisal is simply an 'official' assessment of a property value. It is an integral part of a home-buying process since the mortgage lender expects the correct valuation of the property you will be purchasing.

When you apply for a loan for buying a house, the mortgage lender will require a report from the appraiser about the market price or a possible selling price of that house. These will be ordered by Global Mortgage Group at the Processing Stage of your loan - on your behalf and will be the only time we will ask for any form of payment.

It's a rough estimate that the lender uses to determine the mortgage rate. The principal or loan amount will be lower than the appraised value of the property. Global Mortgage Group loans out 75% (for Foreign Nationals) to 90% (for U.S. citizens) of a home's appraisal value.

The appraisal must be done by a person or an organization with the required licenses in that jurisdiction.

A licensed professional appraiser will work without any bias and make sure that the estimation is fair. When the lender requests the appraisal during the mortgage approval process, it will be randomly selected from a panel of reputable companies to ensure an unbiased opinion.

So, what features of the house matter to the appraiser? Some people have the misconception that eye-catching decoration and luxurious furniture increases the price. In fact, these things add value during other steps of home buying and selling, not in the appraisal process.

A home's value will depend on its current condition, square footage, number of bedrooms, location, neighborhood, and a handful of other things. Appraisers will also note the views, which means overlooking a beach, lake, or the city. A property in a prime location or a prestigious neighborhood will qualify for a higher loan than those located in a less desirable area.

Normal appraisals range between $500-800 depending on State and location. If a lender requires a Rental Comparison, it may add $100-200 more.

In short, a CAP rate on a commercial property is simply a way for investors, lenders, and other real estate professionals to quickly see the strength of the subject property and the likely one year unleveraged (meaning the property is purchased with cash) return that the property may generate. Like any other investment, investors need a way to compare one property with another and have a way to measure which is the stronger (less risky) investment – or vice versa, if they are willing to take on more risk, for more potential return; the CAP rate is that measurement.

The lower the CAP rate, the stronger (and more expensive) the property is. In a major market, think San Francisco or LA, you can expect to see CAP rates in the 4%-5% range. CAP rates can be in the higher single digits in a tertiary market and increase into double digits. In the most basic terms, an investor looking at a building with a 4% CAP should expect that building to yield approximately 4% in one year. An 8% CAP will be a property with a higher risk profile, hence the higher potential return required by sponsors (8%).

The CAP rate is usually always published on real estate presentations or websites, though it can be easily calculated. Take the Net Operating Income (NOI) of the property and divide it by the current market value as per current market prevailing rates.

CAP rates should be used as a quick basis for measurement to compare properties but not fully base a decision on. The reason for this is that CAP rates fluctuate based on the calculated NOI of the property, which can change based on the year, location, expenses for the building, etc. The CAP rate can also be adjusted based on who the intended reader of the information is. In summary, the CAP rate should be used as a quick measurement of a properties’ strength. If the estimated returns fit your investment profile, you should dig deeper into the property's details.

A 1031 exchange is simply an exchange of one investment property for another, where the capital gains taxes on the property sold are deferred. The strategy is named after the section in the IRS tax code, section 1031. A 1031 Exchange is a very popular and commonly used strategy in buying and selling investment properties. Investors can defer the capital gains taxes to a future period where it may be more advantageous to pay them.

An investor considering using a 1031 Exchange should engage a 1031 Exchange agent and their CPA early in the process. There are very specific timelines and requirements that need to be met for the exchange to be successful. A miss on a timeline or property detail could void the exchange or result in a sponsor's tax event.

This article will touch briefly on two of the main requirements for a successful 1031 exchange: timeline and debt replacement.

There are two main periods in a 1031 Exchange. The first is the 45 day period where you must identify three potential properties to exchange for and notify your exchange intermediary of those properties. The intermediary will receive the cash from your property's sale and hold onto that cash throughout the exchange process. If the cash from the sale goes to the sponsor, the exchange is void.

The second timeline is within 180 days after the sale of your property, and you must close on purchasing one of the properties you had previously identified to your intermediary. It's important to note that both time periods run concurrently. If the sponsor takes the full 45 days to identify replacement properties, they will have fewer days to close on the property they ultimately choose.

Debt replacement is often an area where investors find themselves in a taxable event. If there is any mortgage debt on the property being sold, that debt needs to be "replaced" on the new property. If the debt is lower on the new property, the difference will be counted as cash to you and could be taxable. For example: if you sell a property with a $1M mortgage balance on it and only have a loan of $700k on your new property, the difference of $300k is considered cash to you and could be taxable.

This article intended to quickly highlight a few key parts of a 1031 Exchange. Any investors looking at utilizing this strategy should engage a qualified exchange agent and their CPA for further advice on the process.