Question 2: Mortgage Products (20 points) A young first-time homebuyer is considering the purchase of a HK$10 million property by taking out an 80% mortgage financing with the following terms: Tenor: 25 years, monthly payments Mortgage interest rate: "Prime" minus 2.5% p.a., Prime Rate is 5%. Standard deposit savings rate: 0.1% p.a. Suppose the following fixed-rate mortgage products are available for consideration. (1) Conventional fully amortized mortgage. (CPM) (2) Growing equity with a 4% increase in the monthly mortgage payments each year. (GEM) (3) Biweekly mortgage (BWM) (4) Graduated payment mortgage with three 5-year steps (3 jumps) and 8% step-up rate before the monthly payments level off. (GPM) (5) Deposit-linked mortgage with savings deposit of HK$500,000 required, deposit interest rate equal to prime minus 2.5% p.a. subject to the 50% cap provision. (DLM) (a) Fill in the following table. (15 points) Mortgage Monthly Mortgage Payments (1st month) Payback Period (Years) Total Interest Expense CPM GEM BWM GPM DLM (b) What are the pros and cons of each of the mortgage products in (a)? (5 points) Question 2: Mortgage Products (20 points) A young first-time homebuyer is considering the purchase of a HK$10 million property by taking out an 80% mortgage financing with the following terms: Tenor: 25 years, monthly payments Mortgage interest rate: "Prime" minus 2.5% p.a., Prime Rate is 5%. Standard deposit savings rate: 0.1% p.a. Suppose the following fixed-rate mortgage products are available for consideration. (1) Conventional fully amortized mortgage. (CPM) (2) Growing equity with a 4% increase in the monthly mortgage payments each year. (GEM) (3) Biweekly mortgage (BWM) (4) Graduated payment mortgage with three 5-year steps (3 jumps) and 8% step-up rate before the monthly payments level off. (GPM) (5) Deposit-linked mortgage with savings deposit of HK$500,000 required, deposit interest rate equal to prime minus 2.5% p.a. subject to the 50% cap provision. (DLM) (a) Fill in the following table. (15 points) Mortgage Monthly Mortgage Payments (1st month) Payback Period (Years) Total Interest Expense CPM GEM BWM GPM DLM (b) What are the pros and cons of each of the mortgage products in (a)? (5 points)