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Please show work step by step, thanks in advance. Home equity and balloon This question illustrates how having a balloon mortgage may lead to a
Please show work step by step, thanks in advance.
Home equity and balloon This question illustrates how having a balloon mortgage may lead to a negative equity that increases the risk of default. Ann would like to buy a house. It costs $2,500,000. Her down payment will be $50,000. She will take out a mortgage for the remainder. It will be a 30 year, fully amortizing, FRM, with constant monthly payments and monthly compounding. The annual interest rate is 4.50%. She will pay $5,000 in closing costs at origination. She will also pay 1.75% of the balance in buy-down points at origination. Ann is pessimistic and forecasts house prices to fall by 0.5% every month. 5. How much home equity will she have after 10 years (120 months)? (the answer is negative few hundred thousand dollars)Step by Step Solution
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