FIN B457F Real Estate Finance Assignment Due Date: 23 December 2020 Question 1 (50 marks) Limited Mortgage Company Limited is offering a new mortgage instrument called the Stable Mortgage. This mortgage is composed of both a fixed rate and an adjustable rate component. Ms Ho is interested in financing a property, which costs $100,000, and is to be financed by Stable Mortgage on the following terms: The mortgage requires a 5% down payment, costs the borrower 2 discount points, and allows 75% of the mortgage to be fixed and 25% to be adjustable. The fixed portion of the loan is for 30 years at an annual interest rate of 10.5%. With neither interest rate cap nor payment cap, the adjustable portion is also for 30 years with the following terms: Initial interest rate = 9% Index = one-year Treasuries Payments reset each year Margin = 2% Interest rate cap = None Payment cap - None The projected one-year U.S. Treasury-bill index, to which the adjustable rate mortgage is tied, is as follows: Beginning of Year (BOY) 2 -10% (BOY) 3 - 11% (BOY) 4 -8% (BOY) 5 - 12% (a) Calculate Ms Ho's total monthly payments and end of the year loan balances for each of the first five years. (30 marks) FIN B457F Real Estate Finance Assignment Due Date: 23 December 2020 Question 1 (50 marks) Limited Mortgage Company Limited is offering a new mortgage instrument called the Stable Mortgage. This mortgage is composed of both a fixed rate and an adjustable rate component. Ms Ho is interested in financing a property, which costs $100,000, and is to be financed by Stable Mortgage on the following terms: The mortgage requires a 5% down payment, costs the borrower 2 discount points, and allows 75% of the mortgage to be fixed and 25% to be adjustable. The fixed portion of the loan is for 30 years at an annual interest rate of 10.5%. With neither interest rate cap nor payment cap, the adjustable portion is also for 30 years with the following terms: Initial interest rate = 9% Index = one-year Treasuries Payments reset each year Margin = 2% Interest rate cap = None Payment cap - None The projected one-year U.S. Treasury-bill index, to which the adjustable rate mortgage is tied, is as follows: Beginning of Year (BOY) 2 -10% (BOY) 3 - 11% (BOY) 4 -8% (BOY) 5 - 12% (a) Calculate Ms Ho's total monthly payments and end of the year loan balances for each of the first five years. (30 marks)