Question

In: Finance

Most banks will charge a ___ interest rate on a $160,000 purchase loan with $200,000 purchase...

Most banks will charge a ___ interest rate on a $160,000 purchase loan with $200,000 purchase price and appraised value than on a $160,000 refinance loan remaining principle on old loan $120,000, with $200,000 appraised value

A. Lower

B. Higher

Solutions

Expert Solution

Answer : B. Higher

The loan-to-value (LTV) ratio is an assessment of lending risk before a mortgage loan is approved. Loans with high LTV ratios are considered as higher risk loans and will be charged a higher interest rate.

The lower the LTV ratio, the lower the interest rate will be. As the LTV ratio increases, the interest on the loan rises.

MA = Mortgage amount

AV = Appraisal value

Case 1

= 80 percent

Case 2

= 60 percent

The interest rate may be higher for Case 1 loan since the LTV is 80% than the interest rate for loan with an LTV ratio of 60%.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

1. The overnight lending rate is a. the interest rate the banks charge one another on...
1. The overnight lending rate is a. the interest rate the banks charge one another on overnight loans, whereas the prime interest rate is the interest rate banks change on loans to their most creditworthy customers. b. the interest rate the banks charge on loans to their most creditworthy customers, whereas the prime interest rate is the interest rate banks charge their largest and most preferred business customers. c. the interest rate the banks charge on loans to their most...
What is the capital charge factor for a loan with an interest rate of 7% for...
What is the capital charge factor for a loan with an interest rate of 7% for 25 years? Make sure to answer to at least three significant figures .
You are given a $200,000 loan to start a business with the interest rate of 3%....
You are given a $200,000 loan to start a business with the interest rate of 3%. How would you invest this money to be able to pay back the loan in 5 years and also make as much profit as you can? Describe the type of business that you would start and include the estimation of one-time cost and recurring cost. Your projects cannot be similar; otherwise, all similar projects will receive zero credit. Show your calculations; explain the basis...
Question 1 options: The “prime” interest rate is the rate that banks charge their best customers....
Question 1 options: The “prime” interest rate is the rate that banks charge their best customers. Nominal interest rates and inflation rates are given in the following table. Year Prime Interest Rate Inflation Rate 1970 7.9% 5.7% 1974 10.8% 11.0% 1978 9.1% 7.6% 1981 18.9% 10.3% Question 1 options: The “prime” interest rate is the rate that banks charge their best customers. Nominal interest rates and inflation rates are given in the following table. Year Prime Interest Rate Inflation Rate...
A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and...
A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and monthly payments. If she wants to pay off the loan after 8 years, what would be the outstanding balance on the loan? (D) $84,886 $91,246 $146,667 $175,545 Not enough information Please explain me the step on financial calculator. The answer is D
Interest Rate Target: Most modern central banks announce a target for a specific interest rate. Consider...
Interest Rate Target: Most modern central banks announce a target for a specific interest rate. Consider each of the two scenarios below, and describe how the central bank would react to maintain a constant interest rate. Draw an IS-LM graph that shows the initial shock. Then discuss the change to the money supply that would keep interest rates constant, the open market operation (bond market transactions) that the central bank does to accomplish that change, and how it shows up...
Ron's Loan: Ron borrows $3,000,000 to purchase a warehouse. The annual interest rate on the loan...
Ron's Loan: Ron borrows $3,000,000 to purchase a warehouse. The annual interest rate on the loan is 8.25 percent, and the term of the loan is 15 years. Suppose Ron refinances the loan at the end of month 48 at the then prevailing interest rate of 8%. Rather than reducing his monthly payment, however, Ron decides to continue making the same monthly payments. How many months must Ron continue to make the payments on this new loan? (Round your answer...
Ron's Loan: Ron borrows $3,000,000 to purchase a warehouse. The annual interest rate on the loan...
Ron's Loan: Ron borrows $3,000,000 to purchase a warehouse. The annual interest rate on the loan is 8.25 percent, and the term of the loan is 15 years. How much principal will Ron pay in month 37? Enter your answer rounded to the nearest penny with no punctuation, but do not use the rounded intermediate results in future calculations involving Ron's Loan (keep all available decimals).
Ron's Loan: Ron borrows $3,000,000 to purchase a warehouse. The annual interest rate on the loan...
Ron's Loan: Ron borrows $3,000,000 to purchase a warehouse. The annual interest rate on the loan is 8.25 percent, and the term of the loan is 15 years. The loan requires the borrower to pay two discount points at the time of origination. A) What is the monthly payment necessary to amortize this loan? B) What is the balance on the loan at the end of month 36? C) How much interest will Ron pay in month 37?    D) How...
6.)The prime rate is the interest rate banks charge their best customers, and is 3% above the Federal Funds rate..
6.)The prime rate is the interest rate banks charge their best customers, and is 3% above the Federal Funds rate..7.)Capital markets are market forA.For financial assets with a maturity of less then one yearB.For financial assets with a maturity of more then one yearC.For use in cash transactionsD.For use in foreign exchange transactions8.)If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT