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Exam 15: Mortgage Calculations and Decisions

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Question 1

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When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield?

A) The yield on the loan will increase.
B) The yield on the loan will decrease.
C) The yield on the loan will be unaffected.
D) The yield on the loan automatically becomes zero.

E) C) and D)
F) A) and C)

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Question 2

Multiple Choice

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You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual) . The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: the term on this ARM is 30 years) . There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loan's term.

A) $321.64
B) $506.69
C) $566.26
D) $597.21

E) None of the above
F) A) and B)

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Question 3

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Suppose a potential home buyer is interested in taking a $500,000 mortgage loan that has a term of 30 years and a fixed mortgage rate of 5.25%. What is the monthly mortgage payment that the homeowner would need to make if this loan is fully amortizing?

You have taken out a $225,000, 3/1 ARM. The initial rate of 5.8% (annual) is locked in for 3 years and is expected to increase to 6.5% at the end of the lock period. Calculate the initial payment on the loan. (Note: the term on this 3/1 ARM is 30 years)

Suppose you have taken out a $200,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 4.25%. In month 2 of the mortgage, how much of the monthly mortgage payment does the principal repayment portion consist of?

You have taken out a $300,000, 5/1 ARM. The initial rate of 5.4% (annual) is locked in for 5 years. Calculate the payment after recasting the loan (i.e., after the reset) assuming the interest rate after the initial lock period is 8.0%. (Note: the term on this 5/1 ARM is 30 years)

Required by the Truth-in-Lending Act, the annual percentage rate (APR) is reported by the lender to the borrower on virtually all U.S. home mortgage loans. The APR accounts for all of the following EXCEPT:

Assume you have taken out a partially amortizing loan for $325,000 that has a term of 7 years, but amortizes over 30 years. Calculate the balloon payment at maturity (Year 7) if the interest rate on this loan is 4.5%.

Suppose you have taken out a $125,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 6%. After your first mortgage payment, how much of the original loan balance is remaining?

Given the following information about a fully amortizing loan, calculate the lender's yield (rounded to the nearest tenth of a percent) . Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2.

You have taken out a $100,000, one-year ARM. The teaser rate in the first year is 4.5% (annual) . The index interest rate after the first year is 3.25% and the margin is 2.75%. (Note: the term on this ARM is 30 years) . There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 1 of the mortgage loan's term.

You have taken out a $300,000, one-year ARM. The teaser rate in the first year is 5.5% (annual) . The index interest rate after the first year is 4.00% and the margin is 2.25%. (Note: the term on this ARM is 30 years) . There is also a periodic (annual) rate cap of 1.00%. Given this information, determine the monthly mortgage payment you would be scheduled to make in month 13 of the mortgage loan's term.

Given the following information, calculate the Effective Borrowing Cost (EBC) . Loan amount: $175,000, Term: 30 years, Interest rate: 7 %, Payment: $1,164.28, Discount points: 1 point, Origination fee: $3,250. Assume the loan is held until the end of year 10.

Suppose you have taken out a $400,000 fully-amortizing fixed rate mortgage loan that has a term of 15 years and an interest rate of 3.75%. In month 1 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of?

Given the following information on a 30-year fixed-payment fully-amortizing loan, determine the remaining balance that the borrower has at the end of seven years. Interest Rate: 7%, Monthly Payment: $1,200.

Assume you have taken out a partially amortizing loan for $1,000,000 that has a term of 7 years, but amortizes over 20 years. Calculate the balloon payment if the interest rate on this loan is 9%.

From the borrower's perspective, the effective borrowing cost is often viewed as the implied internal rate of return (IRR) , since it takes into consideration costs that the borrower faces, but which are not passed on as income to the lender. Included in this calculation are certain closing costs, which may consist of all of the following EXCEPT:

Given the following information, calculate the balloon payment for a partially amortized mortgage. Loan amount: $84,000, Term to maturity: 7 years, Amortization Term: 30 years, Interest rate: 4.5%, Monthly Payment: $425.62.

In considering a 3/1 adjustable-rate mortgage (ARM) , the interest rate will be fixed for how many years?

Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower. Loan Term: 30 years, Monthly Payment: $800, Interest Rate: 6%.