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AN INTEREST ONLY MORTGAGE IS MADE FOR $80000 AT 10% INTEREST FOR 10 YEARS . THE...

AN INTEREST ONLY MORTGAGE IS MADE FOR $80000 AT 10% INTEREST FOR 10 YEARS . THE LENDER AND THE BORROWER THAT MONTHLY PAYMENTS WILL BE CONSTANT AND WILL REQUIRE NON LOAN AMORTIZATION. WHAT WILL BE MONTHLY PAYMENTS BE? WHAT WILL BE LOAN AMORTIZATION BE AFTER FIVE YEARS ? WHAT WILL BE THE YIELD TO THE LENDER IF THE LOAN IS REPAID AFTER FIVE YEARS?

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Answer #1

Monthly payment= Interest rate * Loan amount/12

= 10%*80000/12 = $666.67

The loan amortization after 5 years will be the original amount = $80000

Yield to lender = Interest received/ Amount loaned

= 10%*80000*5/ 80000

= 50%

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