If you were in early 2021with the once-in-a-generation low interest rate environment, and the rates would likely to increase in the next decade. If you graduated from college in the early 2021 and have a decent job, you have decided to purchase a relative expensive house to your income. Suppose that a bank offered you three types of mortgages: adjusted rate mortgage (ARM), fixed-rate mortgage with constant payments (FRM) and graduated payment mortgage (GPM). Which type of mortgage should you choose and why?
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If you were in early 2021with the once-in-a-generation low interest rate environment, and the rates would likely to increase in the next decade. If you graduated from college in the early 2021 and have a decent job, you have decided to purchase a relative expensive house to your income. Suppose that a bank offered you three types of mortgages: adjusted rate mortgage (ARM), fixed-rate mortgage with constant payments (FRM) and graduated payment mortgage (GPM). Which type of mortgage should you choose and why?
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- As you research financing the purchase of your first home, you notice that the interest rate on an adjustable-rate mortgage (ARM) is lower than that on a fixed-rate mortgage. In addition, there would be a payment cap on your monthly payments for an ARM and you would have the option to convert to a fixed-rate mortgage. You are tempted. Interest rates are currently low by historical standards and you are anxious to buy a house and stay in it for the long term. Why might an ARM not be the right mortgage for youSuppose you need to borrow $200,000 to buy a home, and you are deciding between a 15 year mortgage and a 30 year mortgage. Research a bank offering 15 year and 30 year mortgage loans and find the interest rates on those loans. Use the techniques you learned in this Module to do the following: 1. Calculate the monthly payment for a 15-year mortgage and for a 30-year mortgage. 2. Find the total amount of interest you will pay on the 15 year mortgage and on the 30 year mortgage. 3. Describe some of the factors (financial and non-financial) that can influence whether to obtain a shorter term mortgage or a longer term mortgage. 4. Which mortgage would you take, the 15 year or the 30 year? Explain your decision.A graduated payment mortgage (GPM) enables the borrower to have lower payments earlier in the mortgage and increased payments later on. The assumption is the borrower’s income will increase over time so that it will be easier for the borrower to meet all payments. Suppose you borrow $150,000 on a 30-year monthly mortgage. You obtain a GPM where monthly payments increase 6% per year through year 5 and then remain constant from year 5 through year 30. For annual interest rates of 2%, 3%, 4%, 5%, and 6%, use Solver to find the amount of each year’s monthly payment.
- Assuming the interest rates are roughly the same, would you prefer to financeyour new company by getting cash advances on your credit cards or by taking out a second mortgage on your house? Why?Learn to make the right decision for your family. Realize that everyone in the transaction of you buying a house wants you to buy the biggest house you can afford. They make more money from the transaction when you buy more house than you can afford, but still qualify for. How much more interest will you pay on a 30 year mortgage versus a 15 year mortgage? Using the following values for average mortgage rates today, compare how much you will pay in interest over the life of the mortgage. 30 year mortgage. i = 2.98, n=30, $300,000 = mortgage value 15 year mortgage. i = 2.75, n=15, $300,000 = mortgage value If you run the numbers, you will come out with $457,987 for the 30 year mortgage over 30 years and only $341.691 for the 15 year mortgage. Subtract the $300,000 from both numbers for the principal and you will have the interest only.Use the advice given in the text from most financial advisors regarding mortgages to solve the problem. 1) Suppose that your gross annual income is $108,000. 1) (a) What is the maximum amount you should spend each month on a mortgage payment? (b) What is the maximum amount you should spend each month for total credit obligations? (c) If your monthly mortgage payment is 75% of the maximum amount you can afford, what is the maximum amount you should spend each month for all other debt? A) (a) $2520; (b) $3240; (c) $1350 B) (a) $2520; (b) $3240; (c) $90 C) (a) $2520; (b) $3240; (c) $1890 D) (a) $30,240; (b) $38,880; (c) $16,200 Use the preference table to answer the question. 2) The preference table shows the results of an election among A, B, and C. 42 C B A First choice Second choice A A B Third choice B C C nothed who is the winner and (b) Is the majority criterion satisfied? Number of votes 10 2)
- You are considering a $75,000, 30-year mortgage to purchase a new home. The bank at which you have done business for many years offers a rate of 7.54% compounded monthly. A competitor is offering 7.35% compounded monthly. Would it be worthwhile for you to switch banks? Explain using mathematical terms/words, formula needed, amount in savings if any, payment, interest, etc. to provide reasoning.Answer the following question using a spreadsheet and the material in the appendix. You would like to buy a house. Assume that given your income, you can afford to pay $12,000 a year to a lender for the next 30 years. If the interest rate is 7% how much can you borrow today based on your ability to pay? What about if the interest rate is 3%? Maximum mortgage at 7%: $ Maximum mortgage at 3%: $Suppose you had to choose between a 9% 25-year mortgage or a 8.5% mortgage with 2 discount points. Assume you wished to borrow $200,000. How long should you wait before prepaying the loan, if you avail the discount points?
- Suppose that you took out a mortgage loan and should repay $500 per month in the next 20 years. In this circumstance, would you be happy if the central bank decides to raise the interest rate?Your parents shop around and a different bank is willing to lend them a $750,000 30-year mortgage with payments of $4,865 per month. What is the implied APR of this loan?Your credit score is in the range of 720-739 and you want to buy a house in Davis (CA). You have 20% down payment to put on a house that has a market value of $450,000. a) Use www.bankrate.com website to identify the bank with the most convenient APR for your 30- year fixed mortgage and accordingly calculate your annual payment. Ignore external and additional costs in your calculation that may vary from one bank to another b) After 20 years of annual payment, how much you should pay in lump sum to your bank to end up all your debts. Ignore penalties or any other additional cost c) According to your finance, your maximum annual payment for your mortgage cannot exceed $24,000. Under this condition, how much should be your minimum down payment for your mortgage?