Question
Tom has a choice in borrowing money for a new house valued at $150,000. He can obtain an 80% LTV loan at 8% for 30
Tom has a choice in borrowing money for a new house valued at $150,000. He can obtain an 80% LTV loan at 8% for 30 years with a 1% origination fee and one discount point, or he can obtain a 90% LTV loan at 8% for 30 years with a 1% origination fee, two discount points, and an up-front mortgage insurance premium of 0.5% of the loan amount plus an annual premium of 0.3% of the loan amount. Tom intends to sell the house in 8 years.
A. What is the net cash received by the borrower if he takes the 90% loan? a. $130,275
b. $130,950 c. $134,325 d. $138,450 e. None of the above
B. Whatistheincrementalmonthlypayment? a. $110.06
b. $140.06 c. $143.81 d. $158.06 e. None of the above
C. What is incremental loan balance? a. $11,536
b. $12,151 c. $13,653 d. $14,734 e. None of the above
D. Whatisthemarginalcostoftheadditionalfunds? a. 14.14%
b. 12.60% c. 10.08% d. 9.93% e. None of the above
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