4. In 2006 Juan and Maria purchased a home for $250,000. They were offered a 30-
ID: 2732097 • Letter: 4
Question
4. In 2006 Juan and Maria purchased a home for $250,000. They were offered a 30-year loan by a mortgage broker for no money down, interest only for the first three years at 3%, then automatically converting to an amortizing loan at 2 points above the prime rate (the prime rate is now 5%). What was their initial monthly payment, and what did it become after the reset? 5. What does the loan adjustment in problem 4 tell you about the financial crisis in the housing market in 2009? Answer using financial calculator
Explanation / Answer
Answer:
a.Total Loan Balance = (250,000*.02) + 250,000 = $255,000 after 3 years
b.Initial PMT interest = 250,000*.03 = 7,500 per yr/12 months =$625 per month
c.Resetd=N = 27*12 = 324
e. I/Y = 5%
f. PV = 255,000
g. FV = 0
h. PMT =$1,435.75, which means that to acquire a loan, you must make higher monthly payments due to the increased risk of giving out loans during the financial crisis in the 2009 housing market.