You are 62 years old, and your house appraises for $450,000. A bank is willing t

Question

You are 62 years old, and your house appraises for $450,000. A bank is willing to give you a reverse mortgage at 50% LTV with a 6% fixed contract rate. You choose an option to receive equal monthly payments over a period of 10 years.

a) What will these payments be?

b) If you choose to move after 5 years, what will you owe the bank?

c) If the home appreciates at 1%, how old will you be before your loan balance exceeds the value of the home?

Please help and give an explanation of how you got that answer!

Explanation / Answer

You are 62 years old, and your house appraises for $450,000. A bank is willing to give you a reverse mortgage at 50% LTV with a 6% fixed contract rate. You choose an option to receive equal monthly payments over a period of 10 years.

a) What will these payments be?

b) If you choose to move after 5 years, what will you owe the bank?

c) If the home appreciates at 1%, how old will you be before your loan balance exceeds the value of the home? loan amount =450000/2= 225000
a) monthly payment=(225000/(PVIFA(6,10)))/12= 225000/(7.36*12)=2547.55

b) after 5 years amount owed to bank=225000/4.2= 53571.42

c) let y years req so PVIFA(1,Y)=2*PVIFA(6,Y)^2

PVIFA(k,n) = [ 1

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