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Part of the blame following the sub-prime mortgage crisis went to the banks for their policy of teaser loans which sucked people into buying houses
Part of the blame following the sub-prime mortgage crisis went to the banks for their policy ofteaser
loanswhich sucked people into buying houses they could not afford. This problem considers this issue:
- a)Suppose you can afford a monthly payment of $600 for your mortgage. Use the loan formula to find the selling price of the house (P) that this corresponds to at the teaser rate of 2% APR compounded monthly. Assume a 30 year mortgage.
- b)Now use the house price from part a) to determine the monthly payment at a rate of 4% APR, representing the true state of things once the period of enticement is over.
- c)How much extra are you now paying? Is this likely to be affordable given your choice of monthly amount in part a)
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