Assume that Gifty Mensah wants to buy a property at Lakeside Estate. The property is a three-bedroom
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Question:
i Find the monthly payment on the mortgage (2 marks)
ii. Find the payment-to-income ratio. Will Gifty qualify for this loan if the lender required a PTI of 40%? (2 marks)
Find the loan-to-value ratio. Will Gifly qualify for this loan if the lender requires a PTI of 90%? (2 marks)
iv. Gifty has a FICO score of 400, what does this indicate about the credit quality of Gifty? Is the bank likely to grant the loan if this were the only factor they were considering? (3 marks)
Construct an amortization schedule for the first six months of the loan. What do you notice? (12 marks)
vi. Assume that Gifty makes a payment of GHC 26,795.30 at the end of month 6. What will be the principal and interest payment in month 7? What is the effect of the partial pre-payment? (4 marks)
vii. Now let's assume that instead of a fixed rate loan, the loan was an ARM that resets every 12 months. Now assume that the new rate on the loan is now 25%. What will be the new monthly payment on the loan for the next 12 months? (2 marks)
viii. What will be the closing balance on this loan at the end of month 120? (2 marks)
ix. What will be the principal and interest repayment in month 120? (2 months)
x. Discuss some of the following risks involved in mortgage lending and how a bank may mitigate them; a. Prepayment risk b. Interest rate risk c. Credit risk (6 marks)
xi. In mortgage lending, lenders are exposed to pipeline risk which is made up of fall-out risk and price risk. What is the difference between fall out risk and pipe line risk? (3 marks)
Related Book For
Real Estate Finance and Investments
ISBN: 978-0073377339
14th edition
Authors: William Brueggeman, Jeffrey Fisher
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