4. In 2006 Juan and Maria purchased a home for $250,000. They were offered a 30-

Question

4. In 2006 Juan and Maria purchased a home for $250,000. They were offered a 30-year loan by a mortgage broker for no money down, interest only for the first three years at 3%, then automatically converting to an amortizing loan at 2 points above the prime rate (the prime rate is now 5%). What was their initial monthly payment, and what did it become after the reset? 5. What does the loan adjustment in problem 4 tell you about the financial crisis in the housing market in 2009? Answer using financial calculator

Explanation / Answer

Answer:

a.Total Loan Balance = (250,000*.02) + 250,000 = $255,000 after 3 years

b.Initial PMT interest = 250,000*.03 = 7,500 per yr/12 months =$625 per month

c.Resetd=N = 27*12 = 324

e. I/Y = 5%

f. PV = 255,000

g. FV = 0

h. PMT =$1,435.75, which means that to acquire a loan, you must make higher monthly payments due to the increased risk of giving out loans during the financial crisis in the 2009 housing market.

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