Question4:An interest-only AR I is made for$300,000for30years.The start rate is 5 percent and the borrower will make monthly interest-only payments for three years. Payments thereafter must be sufficient to fully amortize the loan at maturity.

a)Iftheborrowermakestheinterestonlypaymentforthreeyears,what1.villthe payments be?(2marks)

b)Assume that at the end of year 3 the reset rate is 6 percent.Theborrow must now make payments so as to fully amortize the loan. \Vhat will the payments be?(3marks)

c)\:Vhat ,vould the monthly payments have been if the borrower took out a fully amortizing mortgage initially?(3marks)

cl)\:Vhat is the difference bebveen taking out a fully amortizing loan initially and taking out the interest only loan forthree years thatthen converts intoa fully amortizing loan?(2marks)

e) \Vhat are some reasons a borrower may take out an interest only loan? (3

marks)