Mortgage Finance The property consists of two hundred eighty (280) acres in the

Question

Mortgage Finance

The property consists of two hundred eighty (280) acres in the fan-shaped development pattern of Drummond, Idaho. Financing information:

Fixed Rate Mortgage

Property appraisal is $2.8 an you believe you can borrow the funds based on an 80% LTV ratio.

Interest rate - 30 year fixed: 4.625%, 2 points required to close the loan.

Interest rate - 15 year fixed: 4.0%

Note: Fully amortized, monthly payments

Answer the following questions, show your calculations:

What is the initial monthly payment in each of the respective loans?

Compare the amount of interest which would be paid on the 30 year vs. the 15 year loan.

Which loan would you choose assuming there is 80% loan to value on the property? Explain.

What would the yield to the lender be on the 30 year fixed loan, considering the 2 points which must be paid?

What would the outstanding balance of the 15 year fixed loan be after 5 years?

Adjustable Rate Mortgage

Assume the loan amount is the same as the fixed rate loan above.

You wonder if an adjustable rate mortgage might be beneficial. You find a 3/2 product which you want to pursue.

Initial rate: 3% margin .25%, 30 year term.

End of three years, Index rises to 4.5%, margin continues.

End of five years, Index rises to 5.0% margin continues.

Answer these questions, show your work:

What is the monthly payment for the interval which begins at the end of the initial period of the loan?

What is the monthly payment for the interval which begins at the end of the first two-year interval of the loan?

Explanation / Answer

Calculation for D part (ammortization schedule)

Value of property was not clear hence have taken it as $ 2.8 mn for calculation

Done first 4 parts as per chegg norm.

A B Formulas Property price $         2,800,000 $   2,800,000 Interest 4.63% 4% tenure 30 15 LTV @ 80% $         2,240,000 $   2,240,000 a monthly payment $11,629 $16,789 PMT(C3, C4, -C5) b Total interest paid $         1,946,389 $      782,021 (C7*12*C4) - C5 c I would chose the loan with 15 years of tenure, as the monthly payment is just about 50% times more but duration is double d Oustanding ammount $         1,969,475 after 5 years

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