1). A borrower is interested in comparing the monthly payments on two otherwise equivalent 30 year FRMs. Both loans are for $100,000 and have a 7% interest rate. Loan 1 is fully amortizing, where as Loan 2 has negative amortization with a $120,000 balloon payment due at the end of the life of the loan. How much higher is the monthly payment on loan 1 versus loan 2? (Hint: calculate both payments and take the difference. Only the future values of the loans are different.) Round your answer to two decimal places.

2).Given the following information, what is the borrower's payment during the 2nd year of the loan? (State your answer as a positive number, rounded to the nearest cent.)

A borrower is offered a 30 year, fully amortizing ARM with an initial rate of 3.2%

After the first year, the interest rate will adjust each year, using 1 yr LIBOR as the index, plus a margin of 175bp.

The price of the property is $8,000,000 and the loan will have an initial LTV ratio of 75%

At the first reset date, 1 year LIBOR is at 3%.

3). A borrower seeking to buy a $250,000 property with a 80% LTV ratio is considering two mortgage choices: a FRM or a FRM with an IO period. The lender offers the following two loans:

Loan 1:

30 year FRM, fully amortizing monthly payments

4% interest

Loan 2:

30 year FRM with 4 year IO period, fully amortizing monthly payments

4.15% interest

How do these two loans compare on 1) monthly payments 2) total interest due over life of the loan? If you were deciding between these two loans, which would you pick and why? (2-3 sentences max)