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Chapter 4 1. A mortgage loan in the amount of $100,000 is made at 12 percent interest for 20 years. Payments are to be made

Chapter 4

1. A mortgage loan in the amount of $100,000 is made at 12 percent interest for 20 years.

Payments are to be made monthly in each part of this problem.

a. What will monthly payments be if:

(1) The loan is fully amortizing?

(2) It is partially amortizing and a balloon payment of $50,000 is scheduled at

the end of year 20?

(3) It is a non-amortizing, or interest only loan?

b. What will the loan balance be at the end of year 5 under parts a (1) through (3)

c. What would be the interest portion of the payment scheduled for payment at the end

of month 61 for each case (1) through (3)?

d. Assume the lender charges 3 points to close the loan in parts a (1) through (3).

What would be the effective rate of interest for each?

e. If the loan is prepaid at the end of year 5, what will be the effective rate of interest for

each?

f. Assume conditions in a (1) except that payments will be interest only for the first 3

years (36 months). If the loan is to be fully amortizing over the remaining 17 years,

what must the monthly payments be from year 4 through 20?

g. Refer to a (1), where the borrower and lender agree to a fully amortizing loan.

(1) How much total interest will be paid from all payments? How much total

amortization will be paid?

(2) What will be the loan balance at the end of year 3?

(3) If the loan is repaid at the end of year 3, what will be the effective rate of

interest?

(4) If the lender charges 4 points to make this loan, what will the effective rate

of interest be if the loan is repaid at the end of year 3?

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