Question
In: Finance
A floating rate mortgage loan is made for $100,000 for a 30-year period at an initial...
A floating rate mortgage loan is made for $100,000 for a 30-year period at an initial rate of 12 percent interest. However, the borrower and lender have negotiated a monthly payment of $800. (a)What will be the loan balance at the end of year 1?
(b) What if the interest rate increases to 13 percent at the end of year 1? How much interest will be accrued as negative amortization in year 5 if the payment remains at $800?
Solutions
Expert Solution
A. Loan Balance at Year 1 End is highlighted in yellow ($ 102,536.5)
| Payment No. | Beginning Balance (A) = Ending Balance | EMI (B) | Principal E=(B-C) | Interest ('C) = A*12%/12 | Ending Balance (A-E) |
| 1 | 1,00,000.00 | 800.00 | -200.00 | 1,000.00 | 1,00,200.00 |
| 2 | 1,00,200.00 | 800.00 | -202.00 | 1,002.00 | 1,00,402.00 |
| 3 | 1,00,402.00 | 800.00 | -204.02 | 1,004.02 | 1,00,606.02 |
| 4 | 1,00,606.02 | 800.00 | -206.06 | 1,006.06 | 1,00,812.08 |
| 5 | 1,00,812.08 | 800.00 | -208.12 | 1,008.12 | 1,01,020.20 |
| 6 | 1,01,020.20 | 800.00 | -210.20 | 1,010.20 | 1,01,230.40 |
| 7 | 1,01,230.40 | 800.00 | -212.30 | 1,012.30 | 1,01,442.71 |
| 8 | 1,01,442.71 | 800.00 | -214.43 | 1,014.43 | 1,01,657.13 |
| 9 | 1,01,657.13 | 800.00 | -216.57 | 1,016.57 | 1,01,873.71 |
| 10 | 1,01,873.71 | 800.00 | -218.74 | 1,018.74 | 1,02,092.44 |
| 11 | 1,02,092.44 | 800.00 | -220.92 | 1,020.92 | 1,02,313.37 |
| 12 | 1,02,313.37 | 800.00 | -223.13 | 1,023.13 | 1,02,536.50 |
B. Below is the table provided for 60 months period, where from 13th month onwards (13%/12) rate has been used to callibrate interest.
As principal amount at 5 year end is 121,969.35, therefore 21,969.35 is the negative amortization if $800 is paid monthly.
| Payment No. | Beginning Balance (A) = Ending Balance | EMI (B) | Principal E=(B-C) | Interest ('C) = A*12%/12 | Ending Balance (A-E) |
| 1 | 1,00,000.00 | 800.00 | -200.00 | 1,000.00 | 1,00,200.00 |
| 2 | 1,00,200.00 | 800.00 | -202.00 | 1,002.00 | 1,00,402.00 |
| 3 | 1,00,402.00 | 800.00 | -204.02 | 1,004.02 | 1,00,606.02 |
| 4 | 1,00,606.02 | 800.00 | -206.06 | 1,006.06 | 1,00,812.08 |
| 5 | 1,00,812.08 | 800.00 | -208.12 | 1,008.12 | 1,01,020.20 |
| 6 | 1,01,020.20 | 800.00 | -210.20 | 1,010.20 | 1,01,230.40 |
| 7 | 1,01,230.40 | 800.00 | -212.30 | 1,012.30 | 1,01,442.71 |
| 8 | 1,01,442.71 | 800.00 | -214.43 | 1,014.43 | 1,01,657.13 |
| 9 | 1,01,657.13 | 800.00 | -216.57 | 1,016.57 | 1,01,873.71 |
| 10 | 1,01,873.71 | 800.00 | -218.74 | 1,018.74 | 1,02,092.44 |
| 11 | 1,02,092.44 | 800.00 | -220.92 | 1,020.92 | 1,02,313.37 |
| 12 | 1,02,313.37 | 800.00 | -223.13 | 1,023.13 | 1,02,536.50 |
| 13 | 1,02,536.50 | 800.00 | -310.81 | 1,110.81 | 1,02,847.31 |
| 14 | 1,02,847.31 | 800.00 | -314.18 | 1,114.18 | 1,03,161.49 |
| 15 | 1,03,161.49 | 800.00 | -317.58 | 1,117.58 | 1,03,479.07 |
| 16 | 1,03,479.07 | 800.00 | -321.02 | 1,121.02 | 1,03,800.10 |
| 17 | 1,03,800.10 | 800.00 | -324.50 | 1,124.50 | 1,04,124.60 |
| 18 | 1,04,124.60 | 800.00 | -328.02 | 1,128.02 | 1,04,452.62 |
| 19 | 1,04,452.62 | 800.00 | -331.57 | 1,131.57 | 1,04,784.19 |
| 20 | 1,04,784.19 | 800.00 | -335.16 | 1,135.16 | 1,05,119.35 |
| 21 | 1,05,119.35 | 800.00 | -338.79 | 1,138.79 | 1,05,458.14 |
| 22 | 1,05,458.14 | 800.00 | -342.46 | 1,142.46 | 1,05,800.60 |
| 23 | 1,05,800.60 | 800.00 | -346.17 | 1,146.17 | 1,06,146.78 |
| 24 | 1,06,146.78 | 800.00 | -349.92 | 1,149.92 | 1,06,496.70 |
| 25 | 1,06,496.70 | 800.00 | -353.71 | 1,153.71 | 1,06,850.41 |
| 26 | 1,06,850.41 | 800.00 | -357.55 | 1,157.55 | 1,07,207.96 |
| 27 | 1,07,207.96 | 800.00 | -361.42 | 1,161.42 | 1,07,569.38 |
| 28 | 1,07,569.38 | 800.00 | -365.33 | 1,165.33 | 1,07,934.72 |
| 29 | 1,07,934.72 | 800.00 | -369.29 | 1,169.29 | 1,08,304.01 |
| 30 | 1,08,304.01 | 800.00 | -373.29 | 1,173.29 | 1,08,677.30 |
| 31 | 1,08,677.30 | 800.00 | -377.34 | 1,177.34 | 1,09,054.64 |
| 32 | 1,09,054.64 | 800.00 | -381.43 | 1,181.43 | 1,09,436.06 |
| 33 | 1,09,436.06 | 800.00 | -385.56 | 1,185.56 | 1,09,821.62 |
| 34 | 1,09,821.62 | 800.00 | -389.73 | 1,189.73 | 1,10,211.36 |
| 35 | 1,10,211.36 | 800.00 | -393.96 | 1,193.96 | 1,10,605.31 |
| 36 | 1,10,605.31 | 800.00 | -398.22 | 1,198.22 | 1,11,003.54 |
| 37 | 1,11,003.54 | 800.00 | -402.54 | 1,202.54 | 1,11,406.07 |
| 38 | 1,11,406.07 | 800.00 | -406.90 | 1,206.90 | 1,11,812.97 |
| 39 | 1,11,812.97 | 800.00 | -411.31 | 1,211.31 | 1,12,224.28 |
| 40 | 1,12,224.28 | 800.00 | -415.76 | 1,215.76 | 1,12,640.04 |
| 41 | 1,12,640.04 | 800.00 | -420.27 | 1,220.27 | 1,13,060.31 |
| 42 | 1,13,060.31 | 800.00 | -424.82 | 1,224.82 | 1,13,485.13 |
| 43 | 1,13,485.13 | 800.00 | -429.42 | 1,229.42 | 1,13,914.55 |
| 44 | 1,13,914.55 | 800.00 | -434.07 | 1,234.07 | 1,14,348.63 |
| 45 | 1,14,348.63 | 800.00 | -438.78 | 1,238.78 | 1,14,787.40 |
| 46 | 1,14,787.40 | 800.00 | -443.53 | 1,243.53 | 1,15,230.93 |
| 47 | 1,15,230.93 | 800.00 | -448.34 | 1,248.34 | 1,15,679.27 |
| 48 | 1,15,679.27 | 800.00 | -453.19 | 1,253.19 | 1,16,132.46 |
| 49 | 1,16,132.46 | 800.00 | -458.10 | 1,258.10 | 1,16,590.56 |
| 50 | 1,16,590.56 | 800.00 | -463.06 | 1,263.06 | 1,17,053.63 |
| 51 | 1,17,053.63 | 800.00 | -468.08 | 1,268.08 | 1,17,521.71 |
| 52 | 1,17,521.71 | 800.00 | -473.15 | 1,273.15 | 1,17,994.86 |
| 53 | 1,17,994.86 | 800.00 | -478.28 | 1,278.28 | 1,18,473.14 |
| 54 | 1,18,473.14 | 800.00 | -483.46 | 1,283.46 | 1,18,956.60 |
| 55 | 1,18,956.60 | 800.00 | -488.70 | 1,288.70 | 1,19,445.29 |
| 56 | 1,19,445.29 | 800.00 | -493.99 | 1,293.99 | 1,19,939.28 |
| 57 | 1,19,939.28 | 800.00 | -499.34 | 1,299.34 | 1,20,438.63 |
| 58 | 1,20,438.63 | 800.00 | -504.75 | 1,304.75 | 1,20,943.38 |
| 59 | 1,20,943.38 | 800.00 | -510.22 | 1,310.22 | 1,21,453.60 |
| 60 | 1,21,453.60 | 800.00 | -515.75 | 1,315.75 | 1,21,969.35 |
Please Upvote and support!!.
Thanks
jeff jeffy answered 1 year agoRelated Solutions
A floting rate mortgage loan is made for $100,000 for a 30-year period at an initial...
A floting rate mortgage loan is made for $100,000 for a 30-year
period at an initial rate of 12 percent interest. However, the
borrower and lender have negotiated a monthly payment of
$800.00
What will the loan balance at the end of year 1?
What if the interest rate increases to 13 percent at the end of
year 1? How much interest will be accrued as negative amortization
in year 1 if the payments remains at $800? Year 5?
A borrower takes out a 30-year mortgage loan for $100,000 with an interest rate of 6%...
A borrower takes out a 30-year mortgage loan for $100,000 with
an interest rate of 6% plus 4 points. Payments are to be made
monthly.
a. What is the effective cost of borrowing on the loan if the
loan is carried for all 30 years?
b. What is the effective cost of borrowing on the loan if the
loan is repaid after 10 years?
4. A borrower takes out a 30-year mortgage loan for $100,000 with an interest rate of...
4. A borrower takes out a 30-year mortgage loan for $100,000
with an interest rate of 6% plus 2 points. What is the effective
annual interest rate on the loan if the loan is carried for all 30
years?
(A) 6.0%
(B) 6.2%
(C) 6.4%
(D) 6.6%
Prime Mortgage Company sanctions a loan application for a 30 year mortgage loan for US$100,000. The...
Prime Mortgage Company sanctions a loan application for a 30
year mortgage loan for
US$100,000. The interest rate on the loan is 12% per annum and the
borrower is required to
make equated monthly payments to repay the loan in 30 years (360
months). If the market
rate of interest goes down to 9% per annum, is the loan still worth
US$100,000? Why? Why
not? (5 points)
b) If the corn farmer in the example above harvests 60,000 bushels,
what...
A fully amortizing mortgage loan is made for $100,000 at 4.5% for 30 years. Payments will...
A fully amortizing mortgage loan is made for $100,000 at 4.5% for
30 years. Payments will be made monthly.
Calculate the following:
a.
Monthly payments
b.
Interest and principal payments during month 1.
c. Total
interest and principal payments made over the life of the loan (30
years).
d. If
the property were sold at the end of year 15, how much is still
owed on the mortgage?
e. At
the end of year 15, how much has been paid...
Suppose that you are considering a conventional, fixed-rate 30-year mortgage loan for $100,000. The lender quotes...
Suppose that you are considering a conventional, fixed-rate
30-year mortgage loan for $100,000. The lender quotes an APR of
7.28%, compounded monthly; mortgage payments would be monthly,
beginning one month after the closing on your home purchase. After
17 years of payments, what is the balance outstanding on your
loan?
Do not round at intermediate steps in your calculation. Round
your answer to the nearest penny. Do not type the $ symbol.
Suppose that you are considering a conventional, fixed-rate 30-year mortgage loan for $100,000. The lender quotes...
Suppose that you are considering a conventional, fixed-rate
30-year mortgage loan for $100,000. The lender quotes an APR of
7.8%, compounded monthly; mortgage payments would be monthly,
beginning one month after the closing on your home purchase. After
15 years of payments, what is the balance outstanding on your loan?
Do not round at intermediate steps in your calculation. Round your
answer to the nearest penny. Do not type the $ symbol
Suppose that you are considering a conventional, fixed-rate 30-year mortgage loan for $100,000. The lender quotes...
Suppose that you are
considering a conventional, fixed-rate 30-year mortgage loan for
$100,000. The lender quotes an APR of 2.78%, compounded monthly;
mortgage payments would be monthly, beginning one month after the
closing on your home purchase. What would be your monthly mortgage
payment?
Mr. John made a Price Level Adjusted Mortgage (PLAM) of $100,000 loan for 30 years. Nominal...
Mr. John made a Price Level Adjusted Mortgage (PLAM) of $100,000
loan for 30 years. Nominal interest rate is equal to 12% and
payments are made monthly. The lender and borrower agreed that loan
balance will be indexed to the CPI (Consumer Price Index) and
adjusted annually. If the CPI is equal to 10% at the end of the
first year, what is the value of the each monthly payments during
the second year?
Mr. John made a Price Level Adjusted Mortgage (PLAM) of $100,000 loan for 30 years. Nominal...
Mr. John made a Price Level Adjusted Mortgage (PLAM) of $100,000
loan for 30 years. Nominal interest rate is equal to 24% and
payments are made monthly. The lender and borrower agreed that loan
balance will be indexed to the CPI (Consumer Price Index) and
adjusted annually. If the CPI is equal to 10% at the end of the
first year, what is the value of the each monthly payments during
the second year?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 7. Choose the bond that is least polar (how would you do this without looking at...
- SCHEME [4 marks] Define a procedure called valid_date? that takes three arguments representing the year, month,...
- Suppose a company is looking to hedge a risk in the derivatives market. What, fundamentally, is...
- Training and Development assignment. Describe the usage of Computer Based Training (CBT) in McDonald's Company training...
- PUT IN JAVA PROGRAMMING LANGUAGE The Rectangle class: Design a class named Rectangle to represent a...
- Journal article summary on inter-group conflict Peer Reviewed Journal article from past 3 years. Please include...
- "Ethical Considerations" Please respond to the following: Reflect upon the responsibilities placed on auditors by the...
ADVERTISEMENT