Real Estate Finance

question 1

An“interest-only” mortgage is made for $80,000 at 10 percent interest for 10 years. The lender and borrower agree that monthly payments will be constant and will require no loan amortization.

a. What will the monthly payments be?

b. What will be the loan balance after 5 years?

c. If the loan is repaid after 5 years, what will be the yield to the lender?

question 2

A partially amortizing loan for $90,000 for 10 years is made at 6 percent interest. The lender and borrower agree that payments will be monthly and that a balance of $20,000 will remain and be repaid at the end of year 10. Assuming 2 points are charged by the lender, what will be the yield if the loan is repaid at the end of year 10?

question 3.

A basic ARM is made for $200,000 at an initial interest rate of 6 percent for 30 years with an annual reset date. The borrower believes that the interest rate at the beginning of year (BOY) 2 will increase to 7 percent.

1. 1. Assuming that a fully amortizing loan is made, what will monthly payments be during year1?
   2. Based on (a) what will the loan balance be at the end of year (EOY)1?
   3. Given that the interest rate is expected to be 7 percent at the beginning of year 2, what will monthly payments be during year 2?
   4. What will be the loan balance at the EOY2?