d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective interest rate? 17. A reverse mortgage is made with a balance not to exceed $300,000 on a property now valued at $700,000. The loan calls for monthly payments to be made to the borrower for 120 months at an interest rate of 11 percent. a. What will the monthly payments be? b. What will be the loan balance at the end of year 3? c. Assume that the borrower must have monthly draws of $2,000 for the first 50 months of the loan. Remaining draws from months 51 to 120 must be determined so that the $300,000 maximum is not exceeded in month 120. What will draws by the borrower be during months 51 to 120? 8000 DO 147 2. A basic ARM is made for $200,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY) 2 will increase to 7 percent. a. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1? b. Based on (a) what will the loan balance be at the end of year (EOY) 1? C. Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will the monthly payments be during year 2? d. What will be the loan balance at the EOY 2? e. What would be the monthly payments in year 1 if they are to be interest only? 5. An interest-only ARM is made for $200,000 for 30 years. The start rate is 5 percent and the horrower will (1) make monthly interest-only davments for three vears Pavments DD DDDD d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If John repays the loan after five years with the prepayment penalty, what is the effective interest rate? 17. A reverse mortgage is made with a balance not to exceed $300,000 on a property now valued at $700,000. The loan calls for monthly payments to be made to the borrower for 120 months at an interest rate of 11 percent. a. What will the monthly payments be? b. What will be the loan balance at the end of year 3? c. Assume that the borrower must have monthly draws of $2,000 for the first 50 months of the loan. Remaining draws from months 51 to 120 must be determined so that the $300,000 maximum is not exceeded in month 120. What will draws by the borrower be during months 51 to 120? 8000 DO 147 2. A basic ARM is made for $200,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY) 2 will increase to 7 percent. a. Assuming that a fully amortizing loan is made, what will the monthly payments be during year 1? b. Based on (a) what will the loan balance be at the end of year (EOY) 1? C. Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will the monthly payments be during year 2? d. What will be the loan balance at the EOY 2? e. What would be the monthly payments in year 1 if they are to be interest only? 5. An interest-only ARM is made for $200,000 for 30 years. The start rate is 5 percent and the horrower will (1) make monthly interest-only davments for three vears Pavments DD DDDD
