Premium Essay

Mortgage Issues

In: Business and Management

Submitted By shadytrail
Words 481
Pages 2
Question 1
a) To calculate PMT for loan:
PV = 4,800,000
N = 360
I/Y = 0.39583333 ← 4.75%/12
FV = 0
Result: PMT = -25,039.07
The monthly payment on this loan is $25,039.07

b) To calculate FV after 2 years:
PV = 4,800,000
N = 24
I/Y = 0.39583333 ← 4.75%/12
PMT = (25,039.07)
Result: FV = -4,648,269.08
The balance (future value) after two years is $4,648,269.08

Question 2
To calculate monthly PMT based on loan
PV = 175,000
N = 240
I/Y = 0.4166667% ← 5%/12 to convert to monthly interest rate
FV = 0
Result: PMT = -1154.92

To calculate PV with mortgage yield of 5.5%
N = 240
PMT = -1154.92
I/Y = 0.458333333% ← 5.5%/12 to convert to monthly interest rate
FV = 0
Result: PV = 167,893.78

To calculate origination loan: $175,000 - $167.893.78 = $7,105.85
The New Jersey Savings Bank should charge an origination fee of $7,105.85

Question 3
a) To calculate monthly PMT during the five-year term: PV = 300,000 N = 120
I/Y = 0.330589% ← ((1+5%/2)^2)^(1/12)-1 FV = 0
Result: PMT = - 3,032.66
The monthly payment during the five-year term is $3,032.66

b) To calculate the loan balance after 5 years: PV = 300,000 N = 60 PMT = -3,032.66 I/Y = 0.330589%
Result: FV = -164,803.69

To calculate monthly PMT during three-year term: PV = 164,803.69 N = 36
I/Y = 0.412392% ← ((1+5%/2)^2)^(1/12)-1 FV = 0
Result: PMT = -4,935.52
The monthly payment during the three-year term is $4,935.52

c) To calculate the overall interest paid on 5-year term loan with a 3-year term renewal
(3,032.66*12*5 + 4,935.52*12*3) – 300,000 = $59,638.32

To calculate the overall interest that would be paid on an 8-year loan PV = 300,000 N = 96 I/Y = 0.351071% ← ((1+4.25%/2)^2)^(1/12)-1 FV = 0
Result: PMT = -3,686.56

To calculate difference in total interest paid
3,686.56*96-300,000 = $53,909.92…...

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