1. You want to buy a house for $400,000 with 10% down payment. You take two mortgages to over the $360,000 needed to buy the house. They are:

• Loan 1: Loan amount $160,000, fully amortizing 30-year fixed rate mortgage for 4.2%.

This loan has 2 points and 1% pre-payment penalty.

• Loan 2: Loan amount $200,000, fully amortizing 15-year, 5-year ARM with reset every five years.

Initial interest rate is 3.6%. Margin set at 2% over prime rate. Expected prime rates: 4% at end of year 5 and 7% at the end of year 10. There are no floors or caps of any kind on this loan.

This loan has 3 points and 2% pre-payment penalty.

Answer the following questions:

1. Loan 1 Mortgage payment for any month, payable end of corresponding month = $
2. Loan 2 Mortgage payment for month 61, payable end of 61st month = $
3. Loan 2 Mortgage payment for month 121, payable end of 121st month =
4. Loan 2 interest paid for the 70th month =
5. Actual Interest rate for 2 loans combined, assuming you keep the house for 10 years =