Your neighbor approached you with a problem. He took out a $300.000. 8%. 30 year
ID: 2767482 • Letter: Y
Question
Your neighbor approached you with a problem. He took out a $300.000. 8%. 30 year mortgage on his house. He did this to raise money to pay off some debt and to send his twin sons to college. His wife was working at the time and. combined with his income, they were able to meet the monthly mortgage payment. His wife no longer is working and he cannot carry the mortgage on his paycheck and is about to default. The bank does not want to foreclose and. instead, has suggested a federal mortgage modification program to modify the mortgage to avoid foreclosure. Three options were proposed. Forgive $75,000 of the current principle due Reduce the interest rate to 4% for the remainder Refinance the balance due into a 30 year. 6% fixed rate mortgage He has 22 years remaining on the mortgage. The bank has agreed to cover all the fees normally charged. Which option should your neighbor take? Show your work.Explanation / Answer
Paid amount: Foe 8 years = 86400
Still due amount = 237600
Option 1:
Due amount is 237600 from which 75000 would be reduced
=237600-75000
=162600
Option 2:
Principle amount due = 220000
Interest= 4%
So he have to pay 228800
Option 3:
Redinancing the remaining for 30 years at 6%
Principle due = 220000
Interest= 6%
Amount to be paid = 233200
(which he have to pay in next 30 years)
Even in Option 1 the amount ro be paid is less, he may default it again as the total amount to be paid is reduced but not the Installment which he cannot afford as of now. I suggest option 3 as the installment will be less for the reduced amount which he can afford
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