[meteor_slideshow slideshow=”arp1″]
You are a mortgage banker at Suntrust Bank in Miami. One customer, Peter, wants to borrow money from your bank to finance his new home. He just finds a new job and plans to buy the house at a price of $300,000. He wants to borrow a 70% loan to purchase the home. You tell Peter that a constant payment, 30 year amortization period, fully amortizing loan (FRM) is available. The interest rate for the loan is 6%, which is the same as the market interest rate. Moreover, you will charge a loan origination fee of 3% for the loan.
(a) What is the monthly payment for the loan?
(b) What is the effective interest rate, assuming the mortgage is paid off after 30 years?
(c) If Peter plans to repay the loan after three years, what is the effective interest rate?
(d) If Peter wants to borrow a 80% loan, the loan rate will be 7%. Everything else being equal (i.e., he prepays the loan after 3 years, with a 3% loan origination fee), would you recommend him to borrow the 80% loan? Why?
(e) Suppose Peter can get a loan with a below-market interest rate from the homebuilder. This fully amortizing FRM loan will have a 80% LTV, 5% interest rate, 30 years amortization period, and with no loan fees. At what price should the homebuilder sell the home to Peter in order to earn the market rate of interest (6%) on the loan? Assume that Peter would have the loan for the entire term of 30 years and the home would normally sell for $300,000 without any special financing.
2. Sharon plans to borrow from a bank to finance her investment in a real estate project. She considers an ARM loan of $100,000 based on the following terms: 1) initial interest rate = 10%; 2) margin = 3%; 3) loan term = 15 years; 4) frequency of adjustment = 1 year (monthly compounding); 5) interest rate cap = none; 6) payment cap = none;
and 7) discount points = 3%; 8) no negative amortization is allowed. The index rates (i.e., based on 3 year
treasure rate) for next two years are expected to be 11% and 8%, respectively.
(a) If theloan will be repaid after 3 years, what would be the monthly payment and the ending loan balance for each of the three years?
(b) What is the effective mortgage yield for borrowing this mortgage?
(c) Now suppose that there is an annual interest rate cap of 2% specified in the loan contract. What is the effective mortgage yield for borrowing this mortgage, assuming no negative amortization is allowed?
(d) Now suppose, instead of the annual interest rate cap of 2%, the bank prefers a 2.5% annual payment cap. Assume that negative amortization is allowed, what is the effective mortgage yield for borrowing this mortgage?
3. Luis took a mortgage loan 5 years ago for $90,000 at 7% interest for 15 years, to be paid in monthly payments. Now, a lender isoffering him a new mortgageloan at 5% for 10 years. The new loan amount is $69,672, the outstandingloan balance of the existing loan. Supposethat a prepayment penalty of 3 %must be paid if Luis refinances the existing
loan. Moreover, the lender who is making the new loan requires anorigination fee of $3,000. Luis
plans to hold the property for 10years. Note: Luis has to pay therefinancing fees (i.e., the origination fee and the prepayment penalty) out ofhis pocket.
(a)What is the total financing cost (not include the loan amount itself) if Luis decides to refinance theold loan?
(b)What is the monthly saving that Luis could realize by refinancing?
(c)Given the information provided here, should Luis refinance? Please support your answer by calculating the effective interest rate of the new loan.
(d) Now suppose that Luis’s current income is low. The new lender allows him to pay a monthly payment of $200 for the new loan (i.e., the actual monthly payment to the lender is only $200, while the loan interest rate is 5%). In this situation, negative amortization occurs. What will be the accrued interest (i.e., not the total interest paid during the 3 year period) for the loan 3 years later from now?
(e) Assume that Luis has to borrow two loans in order to refinance. That is, he has to borrow a new mortgage ($50,000) at 5% for 10 years (i.e., the loan maturity and the amortization period are the same, 10 years) and another
mortgage ($19,672) at 8% for 5 years (the loan maturity and the amortization period are the same, 5 years). In this
case, with the same origination fee of $3,000 and the prepayment penalty of 3%, should Luis go ahead with the refinancing plan? Why?
[meteor_slideshow slideshow=”arp2″]
A-Research-Paper.com is committed to deliver a custom paper/essay which is 100% original and deliver it within the deadline. Place your custom order with us and experience the different; You are guaranteed; value for your money and a premium paper which meets your expectations, 24/7 customer support and communication with your writer. Order Now
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]