FIN 413 EXAM 2 QUESTIONS WITH
ACCURATE ANSWERS
What are the payments on a 30yr, 6% $280,000 fixed rate mortgage? - ANSWER
use annuity table : 6% at 30 yrs = 166.74
280,000/166.79 = 1678.74
What is the remaining principle after 10 years on a 30yr, 6%. $280k fixed rate
mortgage? - ANSWER 1678.74 * 139.58 (annuity table) = 234,355
Do partial prepayments on fixed rate fully amortizing mortgages,
1. reduce future required monthly payments to maintain the original term
2. reduce loan term? - ANSWER 1. no, they don't reduce monthly payments they
simply reduce loan price.
2. yes
Calculate the monthly payment and the balloon payment for 280,000 loan and
with 7 year maturity and a 30 year amortization If the interest rate is 6%
compounded monthly - ANSWER 280k / 166.79 (annunity table) = 1678.74
1678.74 * 149.51 (annuity 6% at 23 years) = 250,990
What types of borrowers get balloon? - ANSWER ones with more stable jobs.
compute the monthly payment for months 12 and 120 on a 5%, 30 year, $150k
interest only mortgage with a 5 year interest only period. NOT COMPLETE RAQ
FEB 8 PAGE 2 - ANSWER
Comparing a $200k, 4% 15 year mortgage to a 5% 30 year fixed rate mortgage.
Which will have the lower monthly payments? - ANSWER .04 @ 15 year on table
= 137.19
.05 @ 30 year on table = 186.28
divide 200 by these values.
.05 @ 30 years is smaller
What is a conforming mortgage? - ANSWER a loan of 417k ot less, with higher
limits equal to 115% of the median home price. Highest being 625,500 or 150% *
417k in high cost areas
,what is a jumbo mortgage? - ANSWER mortages between 417k and upper limit of
625,500
The down payment is $200k on a house with the agreed upon price (and
appraisal) of $700k. Jumbo mortgage rates are 4.6% and conforming interest
rates are 4.4%. If the conforming loan limit iis 417K in the area, then the
breakeven rate on a seconf mortgage piggybank arrangement is... - ANSWER
500(.046)= 417(.044)+83(x) =
solve for x = 5.6%
What is a 1 year ARM? - ANSWER rate is fixed for 1 year then adjusts annually
after that.
What is a 3/1 ARM?
What is a 3/3 ARM? - ANSWER rate is fixed for 3 years. Adjusts annually after
that
rate is fixed for 3 years and adjusts every 3 years.
What are teaser rates? - ANSWER when the housing market is low lender will set
ARM loans low then adjust them higher to make up difference.
What is rate paid = index + margin - ANSWER once the interest rates starts to
adjusting this is how its determined.
Define Lookback period - ANSWER The index is calculated 45 days before the
rate actually changes. This is called the lookback period.
What are the three options a borrower can choose to pay for his house? -
ANSWER 1. a traditional fully amortizing payment of principle and interest
2. an interest only payment
3. a min payment that may be less than the amount of interest due. (negative
amortization)
Before making a loan with (possible) negative amortization, the bank must be
expecting the value of the house to _____ over time. - ANSWER increase
If the 1 year T-Bill yeilds 4% and the 10year TNote yields 4% "the market"
probably expects the 1 year Tbill rate to __________ over time - ANSWER
decrease : longer lends equal higher yields
Do partial prepayments on a ARM
1. reduce future required payments to maintain the original term?
2. reduce the term of the loan? - ANSWER 1. they reduce the monthly payments
2. keep the term
, In todays market when are the borrower clienteles for a 5/1 ARM instead of a
fixed rate mortgage? - ANSWER When the borrower gets a low intial rate and
plans to move to a new house in the short term.
Some mortgage have discount points.What does a dsicount point mean?
are they tax deductible?
What is the crude break even point? - ANSWER prepaid interest, one point
equals one percent
yes
savings on interest rate x number of years = points paid
number of years = points / savings on interest rate
This would be a more accuuate analysis:
pv of savings each year = - ANSWER interest rate savibgs * remaining priciple *
pv factor
A lender offers.. RAQ FEB 8 Page 6 - ANSWER
What does the ARP give
What does the ARP include? (4) not include?(6) - ANSWER the true percentage
of the loan. the interest rate does not give everything
loan origination fees, mortgage insurance premiums, mortgage broker fees,
and transaction fees
not: app fees, survey, title, taxes, appraisal and credit report fees
What is the flaw is ARP? - ANSWER that you calculate the whole term of the
mortgage so if some plan on moving out it doesnt count.
In a competitive market for a 30 yr fixed rate mortgages, all else equal, which
will have the higher annual percentage rate (arp), a no points loan or a loan with
2 discount points? - ANSWER no discount points because the bank wants you to
be there the whole time.
The intial rate on a 30 year, 25% down 5/1 ARM is 4%. The loan has a margin of
2.75% and a 6% lifetime cap. The index is now .75%. The loan does not have any
closing costs that are included in the ARP. The ARP will be ABOVE OR BELOW
4%? - ANSWER below 4%. That means apr is bad
ACCURATE ANSWERS
What are the payments on a 30yr, 6% $280,000 fixed rate mortgage? - ANSWER
use annuity table : 6% at 30 yrs = 166.74
280,000/166.79 = 1678.74
What is the remaining principle after 10 years on a 30yr, 6%. $280k fixed rate
mortgage? - ANSWER 1678.74 * 139.58 (annuity table) = 234,355
Do partial prepayments on fixed rate fully amortizing mortgages,
1. reduce future required monthly payments to maintain the original term
2. reduce loan term? - ANSWER 1. no, they don't reduce monthly payments they
simply reduce loan price.
2. yes
Calculate the monthly payment and the balloon payment for 280,000 loan and
with 7 year maturity and a 30 year amortization If the interest rate is 6%
compounded monthly - ANSWER 280k / 166.79 (annunity table) = 1678.74
1678.74 * 149.51 (annuity 6% at 23 years) = 250,990
What types of borrowers get balloon? - ANSWER ones with more stable jobs.
compute the monthly payment for months 12 and 120 on a 5%, 30 year, $150k
interest only mortgage with a 5 year interest only period. NOT COMPLETE RAQ
FEB 8 PAGE 2 - ANSWER
Comparing a $200k, 4% 15 year mortgage to a 5% 30 year fixed rate mortgage.
Which will have the lower monthly payments? - ANSWER .04 @ 15 year on table
= 137.19
.05 @ 30 year on table = 186.28
divide 200 by these values.
.05 @ 30 years is smaller
What is a conforming mortgage? - ANSWER a loan of 417k ot less, with higher
limits equal to 115% of the median home price. Highest being 625,500 or 150% *
417k in high cost areas
,what is a jumbo mortgage? - ANSWER mortages between 417k and upper limit of
625,500
The down payment is $200k on a house with the agreed upon price (and
appraisal) of $700k. Jumbo mortgage rates are 4.6% and conforming interest
rates are 4.4%. If the conforming loan limit iis 417K in the area, then the
breakeven rate on a seconf mortgage piggybank arrangement is... - ANSWER
500(.046)= 417(.044)+83(x) =
solve for x = 5.6%
What is a 1 year ARM? - ANSWER rate is fixed for 1 year then adjusts annually
after that.
What is a 3/1 ARM?
What is a 3/3 ARM? - ANSWER rate is fixed for 3 years. Adjusts annually after
that
rate is fixed for 3 years and adjusts every 3 years.
What are teaser rates? - ANSWER when the housing market is low lender will set
ARM loans low then adjust them higher to make up difference.
What is rate paid = index + margin - ANSWER once the interest rates starts to
adjusting this is how its determined.
Define Lookback period - ANSWER The index is calculated 45 days before the
rate actually changes. This is called the lookback period.
What are the three options a borrower can choose to pay for his house? -
ANSWER 1. a traditional fully amortizing payment of principle and interest
2. an interest only payment
3. a min payment that may be less than the amount of interest due. (negative
amortization)
Before making a loan with (possible) negative amortization, the bank must be
expecting the value of the house to _____ over time. - ANSWER increase
If the 1 year T-Bill yeilds 4% and the 10year TNote yields 4% "the market"
probably expects the 1 year Tbill rate to __________ over time - ANSWER
decrease : longer lends equal higher yields
Do partial prepayments on a ARM
1. reduce future required payments to maintain the original term?
2. reduce the term of the loan? - ANSWER 1. they reduce the monthly payments
2. keep the term
, In todays market when are the borrower clienteles for a 5/1 ARM instead of a
fixed rate mortgage? - ANSWER When the borrower gets a low intial rate and
plans to move to a new house in the short term.
Some mortgage have discount points.What does a dsicount point mean?
are they tax deductible?
What is the crude break even point? - ANSWER prepaid interest, one point
equals one percent
yes
savings on interest rate x number of years = points paid
number of years = points / savings on interest rate
This would be a more accuuate analysis:
pv of savings each year = - ANSWER interest rate savibgs * remaining priciple *
pv factor
A lender offers.. RAQ FEB 8 Page 6 - ANSWER
What does the ARP give
What does the ARP include? (4) not include?(6) - ANSWER the true percentage
of the loan. the interest rate does not give everything
loan origination fees, mortgage insurance premiums, mortgage broker fees,
and transaction fees
not: app fees, survey, title, taxes, appraisal and credit report fees
What is the flaw is ARP? - ANSWER that you calculate the whole term of the
mortgage so if some plan on moving out it doesnt count.
In a competitive market for a 30 yr fixed rate mortgages, all else equal, which
will have the higher annual percentage rate (arp), a no points loan or a loan with
2 discount points? - ANSWER no discount points because the bank wants you to
be there the whole time.
The intial rate on a 30 year, 25% down 5/1 ARM is 4%. The loan has a margin of
2.75% and a 6% lifetime cap. The index is now .75%. The loan does not have any
closing costs that are included in the ARP. The ARP will be ABOVE OR BELOW
4%? - ANSWER below 4%. That means apr is bad
