You are borrowing $250,000 to buy a house, using a standard, 30-year mortgage. Your mortgage lender offers a 5.50% mortgage with no points, or an X% mortgage with 0.80 points. You plan on living in the house for exactly 31 months, paying only the required payment each month, and without refinancing your mortgage. What rate for the mortgage with points will make you indifferent between the two mortgages? Calculate a nominal rate, with monthly compounding. Use the 5.50% rate to discount cash flows between the two options. Note: all rates in the problem are nominal annual rates with monthly compounding. Recall, 1 point is 1% of the mortgage. Enter your answer in decimal format, to 4 decimal places. truncated. For example, if your answer is 5.518%, answer "0.0551".

You are borrowing $250,000 to buy a house, using a standard, 30-year mortgage. Your mortgage lender offers a 5.50% mortgage with no points, or an X% mortgage with 0.80 points. You plan on living in the house for exactly 31 months, paying only the required payment each month, and without refinancing your mortgage. What rate for the mortgage with points will make you indifferent between the two mortgages? Calculate a nominal rate, with monthly compounding. Use the 5.50% rate to discount cash flows between the two options. Note: all rates in the problem are nominal annual rates with monthly compounding. Recall, 1 point is 1% of the mortgage. Enter your answer in decimal format, to 4 decimal places. truncated. For example, if your answer is 5.518%, answer "0.0551".

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that you take out a 40-year $175000 mortgage with an APR of 6%. You make payments for 3 years and then you consider refinancing the original loan. The new loan would have a term of 15 years, have and APR of 5.7% and be in the amount of the unpaid balance on the original loan. The administrative cost of taking out the second loan would be $1700. What are the monthly payments on the original loan? What would the monthly payment of the second loan be? What would the total amount you would pay if you continued with the original 40-year loan without refinancing? What would the total amount would you pay with the refinancing?
You plan to purchase a $400,000 house using either a 25-year mortgage obtained from your local savings bank with a rate of 8.40 percent, or a 10-year mortgage with a rate of 7.65 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate the amount of interest and, separately, principal paid on each mortgage. What is the difference in interest paid? b. Calculate your monthly payments on the two mortgages. What is the difference in the monthly payment on the two mortgages? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) a. b. Interest under 10-year mortgage Interest under 25-year mortgage Difference in interest paid Monthly payment under 10-year mortgage Monthly payment under 25-year mortgage Difference in monthly payment
You want to buy a house that has a purchase price of $190,000. You plan to make a down payment of 10% of the purchase price and then borrow the rest. What is the dollar value of your down payment? $ 19,000 How much money will you need to borrow? $ 171,000 You have the option to take out a 30-year mortgage that has an APR of 4% or a 20-year mortgage that has an APR of 3.25%. When answering the following questions, remember to base your mortgage payments on the amount you need to borrow rather than the entire purchase price. 30-year mortgage If you take out a 30-year mortgage with an APR of 4%, what will your monthly payment be? (Round your answer to the nearest cent.) $ 816.38 If you make the payment you just calculated every month for 30 years, how much will you pay altogether? $ What dollar amount of your total 30-year mortgage payments go to interest? Hint: The dollar amount of your interest is the difference between your total payments and the amount you borrowed. $ What percentage…
You are borrowing $250,000 to buy a house, using a standard, 30-year mortgage. Your mortgage lender offers a 5.50% mortgage with no points, or a 5.20% mortgage with X points. You plan on living in the house for exactly 84 months, paying only the required payment each month, and without refinancing your mortgage. What points will make you indifferent between the two mortgages? Use the 5.50% rate to discount cash flows between the two options. Note: all rates in the problem are nominal annual rates with monthly compounding. Recall, 1 point is 1% of the mortgage. Carry your answer to 2 decimal places. For example, if your answer is 1.255 points, answer "1.26". a
Suppose your gross monthly income is $5,300 and your current monthly payments are $625. If the bank will allow you to pay up to 36% of gross monthly income (less current monthly payments) for a monthly house payment, what is the maximum loan you can obtain if the rate for a 30-year mortgage is 4.65%? (Round your answer to the nearest cent.)
You need a 25-year, fixed-rate mortgage to buy a new home for $240,000. Your bank will lend you the money at a 5.35 percent APR for this 300-month loan. However, you can only afford monthly payments of $450, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $450? (Do not round intermediate calculations. Round the final answer to 2 decimal places.
You want to buy a house that costs $170,000. You have $17,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $153,000. However, the realtor persuades the seller to take a $153,000 mortgage (called no more than $17,000 per year given a seller take-back mortgage) at a rate of 10%, provided the loan is paid off in full in 3 years. You expect to inherit $170,000 in 3 years, but right now all you have is $17,000, and you can afford to make payments your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.) a. If the loan was amortized over 3 years, how large would each annual payment be? Do not round Intermediate calculations. Round your answer to the nearest cent. $ Could you afford those payments? -Select- b. If the loan was amortized over 30 years, what would each payment be? Do not round Intermediate calculations. Round your answer to the nearest cent. $ Could you afford those…
Suppose you are interested in taking an FHA mortgage loan for $250,000 in order to purchase your principal residence. In order to do so, you must pay an additional up-front mortgage insurance premium (UFMIP) of 1.0% of the mortgage balance. If the interest rate on the fully-amortizing mortgage loan is 5% and the term is 30 years and the UFMIP is financed (i.e., it is included in the loan amount), what is the dollar portion of your monthly mortgage payment that is designated to cover the UFMIP? A. $2,500.00B. $1,119.41C. $159.67D. $13.42
You want to buy a house that costs $280,000. You have $28,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $252,000. However, the realtor persuades the seller to take a $252,000 mortgage (called a seller take-back mortgage) at a rate of 6%, provided the loan is paid off in full in 3 years. You expect to inherit $280,000 in 3 years, but right now all you have is $28,000, and you can afford to make payments of no more than $19,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.) a. If the loan was amortized over 3 years, how large would each annual payment be? Do not round intermediate calculations. Round your answer to the nearest cent. $ Could you afford those payments? -Select- b. If the loan was amortized over 30 years, what would each payment be? Do not round intermediate calculations. Round your answer to the nearest cent. $ Could you afford those…
3. You are purchasing a new home and need to borrow $325,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.5% APR for a 30-year fixed rate mortgage (with payments made at the end of each month). The mortgage lender also tells you that if you are willing to pay one point, they can offer you a lower rate of 6.25% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points, you will need to borrow an additional $3,250 to cover points you are paying the lender. Assuming that you do not intend to prepay your mortgage (pay off your mortgage early), are you better off paying the one point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points?
You are planning to purchase a house that will require a mortgage of $300,000. You find 2 mortgage offers both at the same rate of 2.5%. One is a 30-year mortgage and the other is a 20-year mortgage. You know, without any computation, that the 30-year mortgage will have lower monthly payments than the 20- year mortgage since the rates are the same. A friend advised that before taking the 30-year mortgage offer, you do some mathematical calculations to see if your budget can handle the extra amount of monthly payment for the 20-year mortgage. Answer the following questions based on the given information: 1. How much more money would you have to budget per month to make the monthly payments on the 20- year mortgage instead of the 30-year mortgage? 2. You ask your friend what advantage there is to be paying more per month on the 20-year mortgage. Your friend replies that it is all about total interest. What is the difference between the total interest on each mortgage? Assume that you…
You are buying a house and will borrow $325,000 on a 25-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.10 percent. Alternatively, she tells you that you can "buy down" the interest rate to 3.75 percent if you pay points up front on the loan. A point on a loan is 1 percent (one percentage point) of the loan value. How many points, at most, would you be willing to pay to buy down the interest rate? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.

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