Tom buys a new house on January 1, 2020. He obtains a $200,000 15-year mortgage at a contract rate of 7%. What is his monthly payment?
a. How much interest does Tom pay in 2020?
b. On January 1, 2021 the prevailing interest rate for loans similar to Tom’s is 6%. What is the current balance of his mortgage? What is the current value?
c. Tom’s friend Sara also has a $200,000 15-year mortgage. She tells Tom that her monthly payment is only $1,666.18. What is the contract rate of her mortgage?
d. On January 1, 2021 Tom’s lender sells his loan on the secondary market for $215,000. What effective yield does the purchaser of Tom’s mortgage receive?
e. On January 1, 2021, Tom decided to refinance his mortgage at a contract rate of 6%. Assuming no transaction costs, by what amount does his net wealth change?