Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You want to buy a house for $700,000 with $140,000 down payment. You take three mortgages to cover the $560,000 needed to buy the house.

  1. You want to buy a house for $700,000 with $140,000 down payment. You take three mortgages to cover the $560,000 needed to buy the house. They are:

Loan 1: Loan for $250,000, fully amortizing 30-year fixed rate mortgage for 4.8%

Loan 2: Loan for $210,000, fully amortizing 30-year, 3-year ARM with a reset every 3 three years.

The initial rate is 3.6%.

The rate is set at a 2% margin over prime. No caps or floors.

The prime rate is expected to be: 4.6% at the end of year 3; 5.2% at the end of year 6 and stays the same till the end of the loan

Loan 3: Loan for $100,000, interest-only loan for 30 years, at a fixed rate of 8%.

  1. What is the effective interest for all the three loans combined, assuming you keep the house for 30 years?

  1. What is the effective interest for all the three loans combined, assuming you keep the house for 10 years? In doing this, assume there is no prepayment penalty on the outstanding balance for each of the three loans.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Construction accounting and financial management

Authors: Steven j. Peterson

2nd Edition

135017114, 978-0135017111

More Books

Students also viewed these Accounting questions

Question

I wasnt sure how to talk about this situation. It was too personal.

Answered: 1 week ago