Question

2.) Consider a fixed-rate mortgage with the following characteristics: loan amount is $133,000 with 30 years to maturity, an interest rate of 7.5% and monthly payments of $929.96. Assume the borrower decides to sell the collateral an get a new property. If the borrower prepays at the end of month 60, what is the amount outstanding on this loan at the time of prepayment?

which of these is the answer? (show your work!): $110,145 $122,445 $125,841 $129,302

3.) Consider the example of a fixed-rate mortgage with the following characteristics: loan amount is $133,000 with 30 years to maturity, an interest rate of 7.5% and monthly payments of $929.96. Suppose the market interest rate falls to 6% and the mortgagor wishes to refinance the loan. Assume she does so at the end of 60 months and replaces the old loan with a new one with the same number of month remaining. The interest savings over the remaining life of the loan due to refinancing equals (hint: compute the difference in monthly mortgage payment due to the refinancing and multiply that by the remaining number of months on the loan):

which of these is the answer? (show your work!): $25,510 $35,748 $38,603 $42,123

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Answer 1

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