Question

Suppose a home buyer took out a 75% LTV loan 9 years ago to purchase a $190,000 home at a fixed interest rate of 8% amortized over 30 years with monthly payments. This loan had 3 discount points, a 1% origination fee, and a 4% prepayment penalty associated with it. The owner is thinking about refinancing and has decided to pay any costs incurred in the process out of his pocket. The loan-to-value ratio on the new loan is not a concern, since home prices in the area have been increasing steadily. The best rates currently available are 4.25% for 30 years with monthly payments. This new loan has a 0.5% origination fee, 3 discount points, and no prepayment penalty. Assuming the owner intends to remain in the home for 10 more years, what would be the return on this refinancing venture?

Answer #1

Marc wishes to buy a $500,000 home using Loan 1 (mortgage rate:
10.60%, maturity: 30 years, origination fee: 4 points, prepayment
penalty: 2%) with loan to value of 80% or using Loan 2 (mortgage
rate: 9.60%, maturity: 30 years, origination fee: 3 points,
prepayment penalty: 2%) with loan to value of 70%.The borrower
plans to be in the home for 5 years. Alternative investments of
similar risk can provide 19.00% IRR and borrowing from alternative
sources (than mortgage) would cost...

You took out your home mortgage five years ago, and are
currently considering refinancing into a loan at a lower rate and
for a shorter term. Your original loan was for 30 years, at 6%
interest on the $200,000 borrowed, and you pay monthly. The new
loan you are considering will be for 15 years at a rate of 4%.
Again, the payments will be monthly. What will your new payment be
if you take on this new loan? SHOW...

An investor obtained a fully amortizing mortgage five years ago
for $175,000 at 11.5% for 30 years. Mortgage rates have dropped so
that a fully amortizing 20-year loan can be obtained at 10%. There
is no prepayment penalty on the mortgage balance of the original
loan, but 3 points will be charged on the new loan and other
closing costs will be $3000. All payments are monthly. What is the
effective "cost" of refinancing?

A few years back, Dave and Jana bought a new home. They borrowed
$230,415 at an annual fixed rate of 5.49% (15-year term) with
monthly payments of $1,881.46. They just made their twenty-fifth
payment and the current balance on the loan is $208,555.87.
Interest rates are at an all-time low, and Dave and Jana are
thinking of refinancing to a new 15-year fixed loan. Their bank has
made the following offer: 15-year term, 3.0%, plus out-of-pocket
costs of $2,937. The...

This morning, you took out a loan of $216,000 to purchase a
home. The interest rate on the 30-year mortgage is 3.75 percent and
you will make monthly payment. You have decided to make additional
monthly payment of $360 beginning with the first payment that will
occur one month from today. By how many years will you shorten the
length of time it will take you to pay off the loan?
Group of answer choices
11.69 years
8.11 years
13.24...

Suppose that five years ago you borrowed $500,000 using a
30-year fixed-rate mortgage with an annual interest rate of 7.00%
with monthly payments and compounding. The interest rate on 30-year
fixed-rate mortgages has fallen to 6.25% and you are wondering
whether you should refinance the loan. Refinancing costs are
expected to be 4% of the new loan amount.
What is the net present value of refinancing if you make all of
the scheduled payments on the new loan?
What is...

Five years ago Lilian took out a 30 year 5/1 Hybrid ARM loan
with monthly payments. The initial rate on this loan is 2% and it
resets to LIBOR plus a margin of 150bps. Suppose the remaining
balance after five years of payments is $197,000 and the LIBOR rate
at the first reset if 4%. What will be Lilian's new monthly payment
during 6th year of the loan? Express your answer as a number
rounded to the nearest cent (e.g....

Five years ago Lilian took out a 30 year 5/1 Hybrid ARM loan
with monthly payments. The initial rate on this loan is 2% and it
resets to LIBOR plus a margin of 150bps. Suppose the remaining
balance after five years of payments is $210,107 and the LIBOR rate
at the first reset if 4%. What will be Lilian's new monthly payment
during 6th year of the loan? Express your answer as a number
rounded to the nearest cent (e.g....

Five years ago Lilian took out a 30 year 5/1 Hybrid ARM loan
with monthly payments. The initial rate on this loan is 4% and it
resets to LIBOR plus a margin of 150bps. Suppose the remaining
balance after five years of payments is $291,861 and the LIBOR rate
at the first reset if 4%. What will be Lilian's new monthly payment
during 6th year of the loan? Express your answer as a number
rounded to the nearest cent (e.g....

Solve using excel:
A. You have taken out a $225,000, 3/1 ARM. The initial rate of
5.8% (annual) is locked in for 3 years and is expected to increase
to 6.5% at the end of the lock period. Calculate the initial
payment on the loan. (Note: the term on this 3/1 ARM is 30 years)
B. Given the following information, calculate the Effective
Borrowing Cost (EBC). Loan amount: $175,000, Term: 30 years,
Interest rate: 7 %, Payment: $1,164.28, Discount points:...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 28 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago