Assume an elderly person owns a $350,000 home that is free and clear of mortgage debt. A lender has agreed to a $350,000 reverse mortgage with monthly payments. The loan term is 15 years.The annual interest rate is 6%.

Questions:

1.What is the interest charged in the 1^stmonth?

2.If the elderly passes away in 5 years (60 months), what will be the loan balance?

3.How much of the loan balance at the end of 60th month represents the interest portion?

4.Suppose that there is $2,000 origination cost associated with the reverse mortgage and the elderly passes away in 5 years (60 months), what is the annual effective cost of the loan to the senior?