1. A fully amortizing mortgage loan is made for 580,000 at 6 percent interest for 25 years.
Payments are to be made monthly. Calculate:
a. Monthly payments.
b. Interest and principal payments during month 1.
c. Total principal and total interest paid over 25 years.
d. The outstanding loan balance if the loan is repaid at the end of year 10.
e. Total monthly interest and principal payments through year 10.
f. What would the breakdown of interest and principal be during month 50?
2. Assume that a lender offers a 30 year, $150,000 adjustable rate mortgage with the following terms:
- Initial interest rate =7.5 percent
- Index = 1 year treasuries
- Payments reset each year
- Margin = 2 percent
- Interest rate cap = 1 percent annually, 3 percent lifetime
- Discount points = 2 percent
- Fully amortizing: however, negative amortization allowed if interest rate caps reached
- Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows:
- Beginning of Year(BOY) 2= 7 percent, (BOY) 3 = 8.5 percent, BOY 4= 9.5 percent: EOY 5 = 11 percent.
-> Compute the payments, loan balances, and yield for the ARM for the five year period.