Loans affordability

Fitch uses the combination of the LTV and the affordability measure for a loan in order to arrive at a base case default probability for any particular borrower in a particular rating test. In the United Kingdom, the income multiple has traditionally been used as the measure of loan affordability, and Fitch places loans in one of five classifications based on this measure (Exhibit 11.4). 

When an individual buys a house he generally cannot afford to pay back a certain percentage plus a rate of interest on the unpaid balance each month. Even when he can, he would prefer to pay the loan back in equal installments each month. A formula is developed in Table 10-6 for determining the value of the payment. The result is ... 

If you cannot afford all of the instrument and its accessories this year, check to see if the company will loan or lease the additional units as an incentive for purchase. Such loan agreements should be spelled out in their bid. 

Mortgage broker - A broker who represents numerous lenders and helps consumers find affordable mortgages the broker charges a fee only if the consumer finds a loan. 

The key to assessing the probability of borrower default lies in assessing their ability and willingness to pay. Affordability is usually measured either as an income multiple for the loan or the ratio of the borrower s monthly debt obligations to their monthly net income. The higher the level of borrower income is relative to debt obligations, the better the ability of the borrower to absorb any financial shocks. 

Balloon loans allow borrowers to repay the loan in relatively low monthly instalments followed by a single balloon payment at the end (usually up to 60% of the loan). In general, balloon loans are considered more risky than loans with full repayment under equal instalments due to the high residual value (RV) and the possibility that the borrower may not be able to afford to make the final balloon payment. Balloon loans may offer the borrower a set of options before the final payment is due ... 

There is therefore a need for micro-level financial skills to be developed within the industry and within the financial community. However, it is also recognized that governments need to intervene to enable companies to access affordable investment capital. What types of interventions can governments employ to help resolve this critical issue A government can provide soft loans, or it can use direct intervention to reduce... 

This work was sponsored by the NSF NSEC for Affordable Nanoengineering of Polymer Biomedical Devices at The Ohio State University. Our thanks to Branson Ultrasonics for the loan of the 40 kHz welder. Many thanks to Don Lovett of Branson for offering the industrial prospective and to David Grewell, Abbass Mokhtarzedah, Hae Woon Choi, Yong Chae Lim and Chunmeng Lu for advice and help. Our further thanks to Dr. Allen Yi and Dr. Yi Zhao for their assistance. 

---