Exam 15: Mortgage Calculations and Decisions

Partially amortizing mortgage loans require periodic payments of principal, but are not paid off completely over the loan's term to maturity. Instead, the balance of the principal amount is paid at maturity in what is commonly referred to as a:

You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for 3 years. Calculate the outstanding balance on the loan after 3 years. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years)

Let's assume that you have just taken out a mortgage loan for $200,000 with an origination fee of 2 points due upfront. The mortgage term is 30 years and the mortgage rate is fixed at 4%. What is the cost of the origination fee in dollar terms?

When fully amortizing loans call for equal periodic payments over the life of the loan they are known as:

You have taken out a $350,000, 3/1 ARM. The initial rate of 6.0% (annual) is locked in for 3 years. Determine the owner's equity in the property after 3 years if the market value of the property at the end of year 3 is $400,000. The interest rate after the initial lock period is 6.5%. (Note: the term on this 3/1 ARM is 30 years)

Given the following information, calculate the effective borrowing cost (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 2, Other Closing Expenses: $3,611.

For the purposes of estimating the effective borrowing cost (EBC), only those up-front expenses associated with obtaining the mortgage should be included, not the settlement costs associated with obtaining ownership of the property. With this in mind, which of the following costs should not be included in one's calculation of EBC?

Suppose you have taken out a $325,000 fully-amortizing fixed rate mortgage loan that has a term of 30 years and an interest rate of 5.5%. In month 10 of the mortgage, how much of the monthly mortgage payment does the interest portion consist of?

Assume that a borrower has a choice between two comparable fixed-rate mortgage loans with the same interest rate, but different mortgage terms, one being a 30-year mortgage and the other a 15-year mortgage. Under financially unconstrained circumstances, which of the following statements best describes the borrower's preference?

The monthly mortgage payment divided by the loan amount is commonly referred to as the:

One reason why adjustable-rate mortgages (ARMs) have become popular has to do with the impact that they have on the interest rate risk that is borne by the parties involved. If interest rates were to rise on a level-payment mortgage (LPM) the interest rate risk of the loan would typically be borne by:

The APR can be a controversial measure of borrowing cost because it tends to:

To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n):

Given the following information on a 30-year fixed-payment fully-amortizing loan, determine the owner's equity in the property after 7 years if the market value of the property is $240,000 at the end of year 7. Interest Rate: 7%, Monthly Payment: $1,200.

Recently, 15-year mortgages have increased in popularity amongst both borrowers and lenders. Which of the following groups of borrowers would typically be the least interested in a 15-year mortgage?

While a variety of loan terms are available in a lender's mortgage menu, the most common loan term on a level-payment mortgage is:

Given the following information on an interest-only mortgage, calculate the monthly mortgage payment. Loan amount: $56,000, Term: 15 years, Interest Rate: 7.5%.

With the recent popularity of adjustable-rate mortgages (ARM), lenders have begun to offer ARMs with different adjustment periods. Which of the following ARM choices will most likely have the highest initial rate?