Suppose that you have decided to purchase a house for $400,000 using an adjustable-rate mortgage with the terms provided below.
Loan-to-value ratio: 90%
Index rate: one-year Treasury yield (currently 3.00%)
Margin: 250 basis points
Amortization: 15 years with monthly payments and compounding
Annual cap: 1.5 percentage points
Lifetime cap: 5 percentage points
Adjustment period: Annually
Teaser Rate 2.50%
1. What is the monthly payment during the first year of the loan?
a. $2133.73
b. $2400.44
c. $2667.16
d. $3268.33
e. None of the above
2. If the yield on one-year Treasuries increases by 2.62% during the first year, what will your payment be during the second year of the loan?
a. $2152.11
b. $2270.14
c. $2826.71
d. $3180.05
e. None of the above
3. What is the principal portion of the 188th month's payment for a $450,000 15/15 Hybrid ARM Mortgage (first 15 years are fixed rate and second 15 years are adjustable - all payments are fully amortizing) with the following parameters:
Fixed Interest Rate: 5.5%
1st Year of ARM portion - LIBOR Index: 1.85%
2nd Year of ARM portion - LIBOR Increase: 1.45%
Margin: 275 basis points
Annual Periodic Cap: 2%
Lifetime Cap: 5%
a. $786.34
b. $906.79
c. $1165.87
d. $1242.31
e. None of the above
4. What is the maximum loan amount the bank will lend you if your gross monthly income is $6000, you have $400 in monthly long-term obligations, and you can make a down payment of 15% of the home price given the following lender's loan parameters?
Interest Rate: 6.5%
Loan type: 30 years
Housing Expense Ratio: 28%
Total Debt Ratio: 41%
a. $246,808.88
b. $265,794.18
c. $279,781.82
d. $290,363.39
e. None of the above
5. Which of the following is/are decisions which a mortgage borrower must consider?
a. Fixed vs. variable rate
b. How soon the loan will be paid off
c. Increasing vs. level payments
d. All of the above
6. How much interest will you pay during the 14th year of a $350,000 house price, 30 year, 6.5% monthly compounded, 80 LTV loan?
a. $7755.94
b. $8379.86
c. $13,968.37
d. $14,627.41
e. None of the above
7. How much principal will you pay with the 76th payment of the loan?
a. $245.11
b. $379.57
c. $1119.24
d. $1390.22
e. None of the above
8. What is the balance at the end of year 12?
a. $162,405.56
b. $184,346.44
c. $212,621.26
d. $225,003.69
e. None of the above