Question

In: Finance

Ann Ahlysis found a co-op apartment that costs $800,000 to buy.She will make a $100,000...

Ann Ahlysis found a co-op apartment that costs $800,000 to buy. She will make a $100,000 down payment and will get a mortgage for $700,000. It will be a fully amortizing 30-year fixed rate mortgage at 3.63% with monthly payments.

(A) What is the Loan to Value (LTV) ratio of the loan?

(B) What will Ann’s monthly mortgage payment be?

(C) What is the total sum of all cash flows that Ann will pay the bank over the entire life of the loan, assuming she never prepays?

(D) Assuming Ann sells her co-op at the end of year 10, what will her mortgage loan balance be at time of sale?

(E) If the value of Ann’s co-op grows 4.5% per year (compounded annually) what will Ann’s home value be in 10 years? Remember, the cost was $800,000 when she purchased it.

Expert Solution

(A) What is the Loan to Value (LTV) ratio of the loan?

Loan to value ratio = mortgage amount / House cost = 700000 / 800000 = 0.875

(B) What will Ann’s monthly mortgage payment be? $3194.33

(C) What is the total sum of all cash flows that Ann will pay the bank over the entire life of the loan, assuming she never prepays?

Total sum of all cash flows = Monthly payment * total # of months = $3194.33 * 360 = $1149958.58

(D) Assuming Ann sells her co-op at the end of year 10, what will her mortgage loan balance be at time of sale?

Mortgage Balance after 10 years = $544492.19

(E) If the value of Ann’s co-op grows 4.5% per year (compounded annually) what will Ann’s home value be in 10 years? Remember, the cost was $800,000 when she purchased it.

Value of House = Current cost * (1 + Growth rate)^Years

Value of House = 800000 * (1 + 4.50%)^10

Value of House = 800000 * 1.553

Value of House after 10 years = $1242375.54

jeff jeffy answered 2 years ago

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