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RES 334 Week 2 Calculate Fixed and Adjustable Rate Mortgages

RES 334 Week 2 Calculate Fixed and Adjustable Rate Mortgages

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RES 334 Week 2 Calculate Fixed and Adjustable Rate Mortgages -

To complete the following assignment, go to this week's Assignment link in the left navigation.

Calculate Fixed and Adjustable Rate Mortgages
Calculate a fixed rate mortgage: Chapter 4 Problem #5: A fully amortizing mortgage loan is made for $100,000 at 6% interest for 20 years.

  1. Calculate the monthly payment for a CPM loan.
  2. What will the total of payments be for the entire 20 year period? Of this total, how much will be interest?
  3. Assume the loan is repaid in the end of 8 years. What will be the outstanding balance? How much total interest will have been collected by then?
    • The borrower now chooses to reduce the loan balance by $5000 at the end of year 8.
    • What will be the new loan maturity assuming that loan payments are not reduced?

Calculate an adjustable rate mortgage: Chapter 5 Problem #4: An ARM for $100,000 is made at the time when the expected start rate is 5%. The loan will be made with the teaser rate of 2% for the first year, after which the rate will be reset. The loan is fully amortizing, has maturity of 25 years, and payments will be made monthly.

  1. What will be the payments during the first year?
  2. Assuming that the reset rate is 6% at the beginning of the year (BOY) 2, what will payments be?
  3. By what percentage will monthly payments increase?
  4. What if the reset date is three years after loan origination and the reset rate is 6%, what will loan payments be beginning in year 4 through year 25?

You are expected to provide a detailed solution to the above referenced problems. Since this assignment is based on calculations only an Excel is required. Make sure to complete all work in your spreadsheet for full credit.

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