Exam 7: Mortgage Markets

Construct an amortization schedule for the first three months and the final three months of payments for a 30-year,7 percent mortgage in the amount of $90,000. What percentage of the third payment is principal? What percentage of the final payment is principal? What do these differences imply? (Hint: The balance after the 357th payment is $1,775.56.)

Explain each term of the following pass-through quote:

Discount points are paid to reduce the down payment required.

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.

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.

A home buyer bought a house for $245,000. The buyer paid 20 percent down but decided to finance closing costs of 3 percent of the mortgage amount. If the borrower took out a 30-year fixed-rate mortgage at a 5 percent annual interest rate,how much interest will the borrower pay over the life of the mortgage?

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?

Why do mortgage lenders prefer ARMs while many borrowers prefer fixed-rate mortgages,ceteris paribus.

Who are the major buyers of mortgages after they have been originated? What is the difference between selling with recourse or without recourse? Which is most common?

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

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?

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

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 invested monthly?

Which of the following statements about mortgage markets is/are true? I. Mortgage companies service more mortgages than they originate. II. Servicing fees typically range from 2 percent to 4 percent. III. Most mortgage sales are with recourse. IV. The government is involved in the residential mortgage markets.

Which one of the following types of mortgages is likely to become more popular as the average age of the U.S. population increases?

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

The process of packaging and/or selling mortgages that are then used to back publicly traded debt securities is called

If the current interest environment is low,lenders tend to prefer ________ ; while borrowers tend to prefer ________.

Rank the following types of mortgages by amount outstanding from largest to smallest. I. Home mortgages II. Multifamily mortgages III. Farm mortgages IV. Commercial mortgages

Why were CMOs created?