Question

5. Suppose you have two options on a $150,000, 30-year, fixed-rate mortgage. Option one is a 5.25% contract rate with 2.00 points. Option two is 5.00% contract rate but you have forgotten how many discount points are charged. Both loans have a 3% prepayment penalty for the first eight years of life.

A. (1 pt) Calculate the number of points on option two that would equalize the

APRs of the two loans.

Answer: ________

B. (1 pt) Calculate the number of points on option two that would equalize the effective costs of the two loans over a five-year holding period.

Answer: ________

Answer #1

It is solved using MS Excel and financial functions.

You are a lender and have offered a borrower a $400,000 30-year
fixed-rate mortgage loan at 4.68% with monthly payments and fully
amortize. The loan does not have any origination fees, but does
have a 2% prepayment penalty during the loan's first 5 years. What
would be the size of the prepayment penalty if the borrower repaid
all remaining principal after the 46th payment? Please indicate
your answer with two spaces right of the decimal.

You are a lender and have offered a borrower a $400,000 30-year
fixed-rate mortgage loan at 4.68% with monthly payments and fully
amortize. The loan does not have any origination fees, but does
have a 2% prepayment penalty during the loan's first 5 years. What
is the ANNUAL PERCENTAGE RATE (APR) of the loan that you as the
lender are required to disclose to the borrower at the time of
origination given the borrower anticipate they will prepay the loan...

Suppose that you are given the option to borrow a fixed rate US
mortgage of $80,000 at 12% for 25 years with monthly payments.
Alternatively, you may borrow another fixed rate US mortgage of
$90,000 for 25 years with monthly payments at a contract interest
rate to be determined. The lender would like to have an effective
annual yield of 25% on the incremental cost of borrowing (i.e., on
the $10,0000), reflecting the borrower’s increased default risk.
Formulate how you...

You are considering the following options on a $250,000
mortgage:
1) A 15-year 3% fixed-rate; 0 points
2) A 15-year 2% fixed rate with 2 points
If you plan to repay the mortgage after five years, you will
have to pay _______________ to retire the mortgage if you choose
option 1, and you will have to pay _________________ to retire the
mortgage if you chose option 2.
Group of answer choices
$178,794.19 ; $174,840.74
$96, 081.01; $91,784.12
$146,413; $153,473.80
$250,000;...

We have a 10-year mortgage for $300,000 at 9.75% p.a. It is to
be repaid in monthly repayments.
(a) What is the repayment amount? Assume the interest is
compounded monthly. Which formula should you use to solve this
problem?
(b) What is the balance outstanding after two years? How much
principal and how much interest have been paid?
(c) After two years, the interest rate falls to 9.25% p.a. What
prepayment penalty would make it unattractive to prepay the
loan?...

You took out a fully amortizing 30 year fixed rate $200,000
mortgage with 5% contract interest rate. After you completed two
full years of payments, how much have you paid toward
principal?
please explain,

You have just sold your house for $1,000,000 in cash. Your
mortgage was originally a 30-year mortgage with monthly payments
and an initial balance of $800,000. The mortgage is currently
exactly 18½ years old, and you have just made a payment. If the
interest rate on the mortgage is 5.25% (APR), how much cash will
you have from the sale once you pay off the mortgage?
Sale
price
$
1,000,000
Initial balance
$
800,000
Number of years
30
Periods...

I have a choice between two different fixed-rate mortgages when
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mortgages require equal monthly payments. What is the required
monthly payment of each loan? How much of a down payment would I
have to make if I wanted the 20-year loan’s payment to be...

You just took a fixed-rate mortgage for $250,000 at 4.50% for 30
years, monthly payments, two discount points. Before you make any
payments you receive a nice raise so you plan to pay an extra $160
per month on top of your normal payment.
A. (1 pt) How many monthly payments do have to make at the
higher payment to fully amortize the loan?
B. (1 pt) What is your net interest savings over the life of the
loan, assuming...

A house is for sale for $640,000. You have a choice of two
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interest on the additional $50,000 borrowed on the first loan?

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