Consider two ways of getting a mortgage on a house worth $750,000. You plan to

make a down payment of $300,000 at closing. You need to borrow the rest of the $450,000.

The first option is a 15 year fixed-rate mortgage at a 5.25% effective annual interest rate

(assume monthly compounding with 12 payments per year to get a monthly interest rate).

In the second option, you can “buy” a lower effective annual interest rate of 4.5% by paying

the bank an additional $25,000 cash at closing (also assume 12 monthly payments over the

year with monthly compounding). You are still borrowing $450,000, but now you are paying

an additional $25,000 in cash up front at origination (this is commonly called paying “points”

on a mortgage). All other costs are the same under both options.

 

1. a) Using the monthly interest rate over 180 payments, what would your monthly

payment be under the first scenario?

 

1. b) Using the monthly interest rate over 180 payments, what would be your

monthly payment under the second scenario?

 

1. c) Show which option is better.

Mr. Smith is purchasing a $ 90000 house. The down payment is 20% of the price of the house. He is given the choice of two mortgages: a) a 25-year mortgage with an annual interest rate of 10 %, with interest compounded monthly.

Find (i) the monthly payment: $

(ii) the total amount of interest paid: $

b) a 15-year mortgage with an annual interest rate of 10 %, with interest compounded monthly.

Find (i) The monthly payment: $

(ii) the total amount of interest paid: $

Jim has an annual income $240,000. jim is looking to buy a house that is selling for $400,000 is a very desirable area, sought after by buyers. He applies for a loan at the bank and is approved for fully amortizing 30 years FRM at an annual rate of 3.40%, with monthly payments, compounded monthly. The bank will not lend more than 80% LTV. The payments, compounded monthly. The bank will not lend more than 80% LTV. The appraisal indicates the house is worth more than $375,000. Jim does not PMI. 1. What is the biggest mortgage Jim can get? 2.What will his monthly payment be? Jim decides to shop around more and finds option #2 - a bank willing to give him a 90% LTV mortgage based upon the $375,000 appraised value at an interest rate of 3.65%. 3. What is the additional amount he can borrow? 4. over the life of the loan, what are the total payments he will make, including the down payment, for option #2? 5.What is the total cost of the incremental amount borrowed for option #2? 6. What is the effective interest rate for the additional amount borrowed under option #2?

You purchase a house for $200,000 by getting a mortgage for $160,000 and paying a $40,000 down payment (20%). You can get a 30 year mortgage with a 3.3% interest rate.

A. What would be your monthly payment? ______________

B. What would be the loan balance half way through in 15 years? __________________

Please show all work, thanks!