Question 2. (24%) Consider a mortgage borrower who wants to buy a house at the p

Question

Question 2. (24%) Consider a mortgage borrower who wants to buy a house at the price $280 000. The bank offers the following mortgage:

Mortgage A: required downpayment: length of the mortgage:

fixed mortgage rate: payment frequency:

25% 30 years 6% monthly.

At the end of one year, the remaining balance of mortgage A will be $207 421.
(1) (8 pts) Calculate the monthly payment on mortgage A, the amount paid on the principal in the first month, and the remaining mortgage balance after the first payment.

Round up the numbers to the first digit after the decimal point.
(2) (8 pts) Calculate the home equity after one year if the house price has increased

by 10%. Also calculate the smallest percentage decrease in the house price in the first year that will wipe out the home equity.

(3) (8 pts) After one year, the house price has increased by 5% and the 30-year fixed mortgage rate has decreased to 48%. Suppose that the homeowner is able to refinance the house with a 30-year mortgage B at the fixed new rate. After paying the refinanc- ing fee $5 000 out of the home equity, the remainder of the home equity is used as the downpayment in mortgage B. Calculate the monthly payment in mortgage B.

Explanation / Answer

1) Cost of the House $280,000 Less: Down Payment (25% x $280,000) -$70,000 Borrowed amount (PV) $210,000 Rate =6%/12 0.50% Nper = 30*12 360 First Payments(PMT)(0.50%,360,-$210,000) $1,259.06 Period Beginning Balance Interest Expense= Beginning Bal. x.50% Payment calculated above Principal = Payment - interest Ending Balance = Beginning Bal. - Principal 1 $210,000 $1,050 $1,259.06 $209.06 $209,790.94 1) First Payments $1,259.06 Principal $209.06 Ending Bal. $209,790.94 2) Home Equity Cost of the House (280,000 x1.10 $308,000 Less: Amount Borrowed ending bal. -$209,790.94 Home Equity $98,209.06

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.