Keywords: mortgage loan, interest rate, developer, restriction, favorable conditions.
Abstract
In this work, we analyzed mortgage loan repayment methods using financial mathematics tools and our own developments based on it. About ten years ago, the Government of the Republic of Armenia approved a new procedure for refunding income tax in an amount equal to the mortgage interest paid. On the surface, the borrower gains nothing: the interest payments represent profit for the lender, while the borrower repays the entire principal amount. However, this repayment does not happen all at once or upfront; rather, it occurs in installments over the entire term of the loan agreement.
The study demonstrates that, initially, a sum significantly smaller than the mortgage amount is "set aside"; through subsequent investments of this sum, the principal will be repaid using the accumulated additional income.
A comparative analysis reveals that, under the new regulations, the annuity repayment method is more advantageous for the borrower, particularly in cases involving high interest rates and/or long-term loans. Numerical examples are provided to substantiate these theoretical conclusions. Consequently, we have identified the highly flexible nature of mortgage lending, offering borrowers practical options and a wide range of possibilities.
Novelty
The novelty of this work lies in the proposal of original developments and modifications—derived using financial mathematics tools—regarding total equal installment repayment and equal principal repayment methods of mortgage loans within the framework of the income tax refund law[1].
We have presented a mortgage loan repayment mechanism based on withholding a minimum amount from the initial loan amount and applying it toward the principal in installments, funded by the accumulated additional income.
Conclusion
Based on the research, we conclude the following:
- Mortgage lending is a flexible instrument,
- The mortgaged real estate belongs to the borrower, not the bank,
- Repaying a mortgage loan ahead of schedule saves both money and time,
- The mortgaged property can be sold, subject to price agreement with the bank,
- A bank's bankruptcy does not release the borrower from the mortgage obligation,
- A down payment for a mortgage loan is not mandatory,
- In the event of an unpaid mortgage debt, the registration of minors does not protect the mortgaged property from foreclosure,
- A damaged credit history is not a reason for loan rejection,
- Declining insurance does not affect the process of obtaining a mortgage loan,
- It is the borrower's right to refinance the mortgage under better terms,
- The borrower's financial difficulties are not a reason for property foreclosure,
- The lender's reliability or stability is important for the borrower,
- By renting out the real estate, the borrower can receive an additional accumulated sum by the end of the term that is nearly 5.5 times the loan amount,
- Alternatively, the borrower could spend an amount equal to 1/180th of the loan each month for 20 years—thereby raising their standard of living (in the case of a rented-out property).
In our view, the only downside to this scheme is the 20 years of wear and tear on an apartment purchased in the primary market. Nevertheless, the transaction as a whole continues to remain highly advantageous for the borrower.
Цель «ГИТАСТГ» — обновление и максимально эффективное использование научно-исследовательского и научно-образовательного потенциала через интеграцию лучшего государственного опыта и его приведение в соответствие с международными стандартами.
