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As discussed in class, what are the objectives of the mortgage lender when entering into a property investment?

User Wwliao
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Final answer:

Mortgage lenders seek financial gain by issuing loans that provide regular income through interest payments and fees. They manage risk and liquidity by selling loans in the secondary loan market and consider broader economic conditions in their investment strategy.

Step-by-step explanation:

The objectives of a mortgage lender when entering into a property investment revolve around financial gains and ensuring the security of their asset—the loan. For the lender, the mortgage represents a significant asset because it results in a steady stream of income over the loan’s term, typically through interest payments made by the borrower. In the primary loan market, lenders may issue mortgage loans, incorporating various handling and processing fees, securing their return on investment in the short term.

Furthermore, mortgage lenders may also engage in the secondary loan market, where they have the option to sell the loans to other financial institutions. This selling strategy helps them manage risk, gain immediate liquidity, and redeploy capital into new loans. The underlying value of the mortgage to both the primary and secondary markets is dictated by what another party is willing to pay for it, which can be influenced by various market conditions including interest rates and the borrower's creditworthiness.

Mortgage lenders need to be cognizant of the broader economic environment as well, such as inflation rates and interest rates. These factors can affect the real value of the repayments and the attractiveness of the mortgage as an investment. Hence, in making a mortgage loan, the lender is essentially balancing risk, return, liquidity, and market conditions to achieve their financial objectives.

User Adnan Y
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