Exam 7: Mortgage Markets

A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years,he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar)?

With a fixed-rate mortgage,the ____________ bears the interest rate risk and with an ARM the ______________ bears the interest rate risk.

You bought your house five years ago and you believe you will be in the house only about five more years before it gets too small for your family. Your original home value when you bought it was $250,000,you paid 20 percent down,and you financed closing costs equal to 3 percent of the mortgage amount. The mortgage was a 30-year fixed-rate mortgage with a 6.5 percent annual interest rate. Rates on 30-year mortgages are now at 5 percent if you pay 2 points. Your refinancing costs will be 1.5 percent of the new mortgage amount (excluding points). You won't finance the points and closing costs this time. A new down payment is not required. Should you refinance? Ignore all taxes and show your work.

On a fixed-rate mortgage the dollars of interest the homeowner pays falls each year the mortgage is outstanding.

Private mortgage insurance (and hence,that part of the homeowner's monthly payment)is automatically removed from a mortgage when the loan-to-value ratio on the mortgage falls below 80 percent.

Mortgage fees paid by the homeowner at,or prior to,closing upon the purchase of a house typically include all but which one of the following?

A homeowner can obtain a $250,000,30-year fixed-rate mortgage at a rate of 6.0 percent with zero points or at a rate of 5.5 percent with 2.25 points. How long must the owner stay in the house to make it worthwhile to pay the points if the payment saving is not invested?

An MBB differs from a CMO or a pass-through in that I. the MBB does not result in the removal of mortgages from the balance sheet. II. a MBB holder has no prepayment risk. III. cash flows on a MBB are not directly passed through from mortgages.

A homeowner could take out a 15-year mortgage at a 5.5 percent annual rate on a $195,000 mortgage amount,or she could finance the purchase with a 30-year mortgage at a 6.1 percent annual rate. How much total interest over the entire mortgage period could she save by financing her home with the 15-year mortgage (to the nearest dollar)?

Why were CMOs created?

If mortgage rates are 6.25 percent for a 30-year fixed-rate mortgage,how large can his mortgage be?

A subprime mortgage is a mortgage made to a borrower who has a below normal credit rating.

A ___________ placed against mortgaged property ensures that the property cannot be sold (except by the lender)until the mortgage is paid off.

If a borrower makes a 20 percent down payment on a conventional mortgage,she will be required to obtain

A borrower using a conventional mortgage will have to put up at least a 20 percent down payment or purchase private mortgage insurance.

The FHA charges the homeowner __________________ to insure an FHA mortgage.

The schedule showing how monthly mortgage payments are split into principal and interest is called a(n)

If parents give their son $20,000 for a down payment,what is the most he can pay on a house with a 15-year mortgage if the interest rate is 5.50 percent?

You purchase a $255,000 house and you pay 20 percent down. You obtain a fixed-rate mortgage where the annual interest rate is 5.85 percent and there are 360 monthly payments. What is the monthly payment?

a(n.___________________ is used to help retired people receive monthly income in exchange for the equity in their home.