1. A house is for sale for $355,000. You have a choice of two 20-year mortgage loans with monthly payments: (1) if you finance 90% of the price, you can obtain a loan with a 6% rate of interest or (2) if you finance 80% of the price, you can obtain a loan with a 5% rate of interest. What is the effective annual rate of interest on the additional amount borrowed on the first loan?
2. A borrower has secured a 30 year, $203,000 loan at 7% with monthly payments. Fifteen years later, the borrower has the opportunity to refinance with a fifteen year mortgage at 6%. However, the new loan requiers the borrower to pay 2 points at closing. What is the return on investment if the borrower expects to remain in the home for the next fifteen years?
3. A borrower has secured a 30 year, $151,000 loan at 7% with monthly payments. Fifteen years later, an investor wants to purchase the loan from the lender. If market interest rates are 5%, what would the investor be willing to pay for the loan?
4. Mr. Fisher has built several houses and is offering buyers mortgage rates of 10% with a 15 year term. Current rates are 10.75%. Fourth National Bank will provide the loans, if Mr. Fisher pays an equivalent amount up front to buy down the interest rate. If a house is sold for $320,000 with a 90% loan, how much would Mr. Fisher have to pay to buy down the loan?
5. The market value of a loan is:

a. The loan balance times one minus the market rate.

b. The loan balance times one minus the original rate.

c. The present value of the remaining payments at the interest rate on the loan.

d. The present value of the remaining payments at the market rate of interest.