A bank extends a traditional 30-year fixed-rate residential mortgage with level monthly payments to a borrower...

 

Transcribed Image Text:

A bank extends a traditional 30-year fixed-rate residential mortgage with level monthly payments to a borrower with the following details: House value / purchase price: $500,000 Downpayment: $100,000 Mortgage rate (annualized): Loan to Value (LTV): 3.50% 80% (= $400,000/ $500,000) a.) Calculate the borrower's fixed monthly payment and calculate the LTV after the first two years of payments assuming the house value remains constant. b.) At the end of year two, the borrower is no longer able to make mortgage payments and the bank sells the house exactly one year later at a 30% discount from the purchase price. Ignoring the time value of money on late payments and other maintenance / transaction costs, calculate the bank's loss at the time of sale. A bank extends a traditional 30-year fixed-rate residential mortgage with level monthly payments to a borrower with the following details: House value / purchase price: $500,000 Downpayment: $100,000 Mortgage rate (annualized): Loan to Value (LTV): 3.50% 80% (= $400,000/ $500,000) a.) Calculate the borrower's fixed monthly payment and calculate the LTV after the first two years of payments assuming the house value remains constant. b.) At the end of year two, the borrower is no longer able to make mortgage payments and the bank sells the house exactly one year later at a 30% discount from the purchase price. Ignoring the time value of money on late payments and other maintenance / transaction costs, calculate the bank's loss at the time of sale.

Answer rating: 100% (QA)

A B Carroll co... View the full answer