A mortgage loan of $200,000 has just been made on a property valued at $250,000. The...

A mortgage loan of $200,000 has just been made on a property valued at $250,000. The interest rate is 5% with 2 points with a 10 year balloon. Monthly amortization payments are based on a 30 year maturity. The mortgage also carries a 2% prepayment penalty. a. What is the indicated loan-to-value ratio? b. What is the monthly mortgage payment? c. How much interest is paid in the fourth year? d. What is the dollar amount of the balloon payment? e. If the mortgage is paid off after 6 years what will the effective yield be? is there a way to do this with a financial calculator if not alternate way?

Expert Solution

Soln : Interest rate here given as 5% plus 2 points, which should make the interest rate as 5 +2 = 7%

10 year balloon means , a lumpsump amount to be given at the end of 10 year with prepayment penalty of 2%

Amprtization to be done based on 30 years maturity.

Loan to value ratio = 200000/250000 = 80%

b) Monthly mortgage payments can be calculated using the PMT function in excel :

On using the PMT we get PMT(0.583%,360,-200000,0) = $1330.60

c) Interest Paid in 4th year , please refer table:

Year	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40	41	42	43	44	45	46	47	48
EMI	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60	$1,330.60
Interest	1166.666667	$1,165.71	$1,164.75	$1,163.78	$1,162.81	$1,161.83	$1,160.84	$1,159.85	$1,158.86	$1,157.86	$1,156.85	$1,155.84	$1,154.82	$1,153.79	$1,152.76	$1,151.72	$1,150.68	$1,149.63	$1,148.57	$1,147.51	$1,146.44	$1,145.37	$1,144.29	$1,143.20	$1,142.11	$1,141.01	$1,139.90	$1,138.79	$1,137.67	$1,136.55	$1,135.41	$1,134.27	$1,133.13	$1,131.98	$1,130.82	$1,129.65	$1,128.48	$1,127.30	$1,126.12	$1,124.92	$1,123.72	$1,122.52	$1,121.30	$1,120.08	$1,118.85	$1,117.62	$1,116.38	$1,115.13
Principal paid	$163.94	$164.89	$165.86	$166.82	$167.80	$168.78	$169.76	$170.75	$171.75	$172.75	$173.76	$174.77	$175.79	$176.81	$177.85	$178.88	$179.93	$180.98	$182.03	$183.09	$184.16	$185.24	$186.32	$187.40	$188.50	$189.60	$190.70	$191.82	$192.93	$194.06	$195.19	$196.33	$197.48	$198.63	$199.79	$200.95	$202.12	$203.30	$204.49	$205.68	$206.88	$208.09	$209.30	$210.52	$211.75	$212.99	$214.23	$215.48
Remaining principal	$199,836.06	$199,671.17	$199,505.31	$199,338.49	$199,170.69	$199,001.91	$198,832.15	$198,661.40	$198,489.66	$198,316.91	$198,143.15	$197,968.38	$197,792.59	$197,615.78	$197,437.93	$197,259.05	$197,079.12	$196,898.14	$196,716.11	$196,533.02	$196,348.85	$196,163.62	$195,977.30	$195,789.89	$195,601.40	$195,411.80	$195,221.10	$195,029.28	$194,836.35	$194,642.29	$194,447.10	$194,250.77	$194,053.29	$193,854.66	$193,654.88	$193,453.93	$193,251.80	$193,048.50	$192,844.01	$192,638.33	$192,431.45	$192,223.36	$192,014.06	$191,803.53	$191,591.78	$191,378.80	$191,164.57	$190,949.09

Interest paid from 37th month to 48th month = $13462.42

d) When we continue this table upto 120 months i.e. 10 years, the remaining principal = $ 171624.77, which will be the balloon payment to be done at the end of 10th year.

jeff jeffy answered 2 years ago

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