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Finance questions: calculating amount qualified to borrow, monthly payment, total interest paid, cost different between adjustable-rate and fixed-rate loans and more...

Can someone please assist me with addressing these mortgage related questions?

(See attached file for full problem description)

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Using the following personal assumption
Monthly gross income $3,000
Money you have in savings for a down payment $25,000
Your monthly payments for all existing debts $400
Property tax rate in your area 1 percent
Hazard/home insurance rate in your area 0.5 percent
Borrower has an acceptable credit risk, with a respectable credit history

2. Assume that the bank offers the following mortgage terms and rates:
Term of loan 15 or 30 years
Down payment required 10 percent to 20 percent
Closing costs of Discount points of 1 percent
Origination fees 2 percent
Lender fees $300
Credit report cost $20
Escrow fee $300
Lender's title insurance fee $400
Recording fee $25
Appraisal report $300
Survey fee $200
Termite infestation report $50
Interest rate for a 15-year fixed mortgage 6.5 percent
Interest rate for a 30-year fixed mortgage 7.0 percent
Interest rate for 15-year adjustable-rate mortgage (ARM) 5.0 percent, adjusted every 12 months
Payment-to-income (PTI) ratio range at your bank 28 percent to 33 percent
Then, using Internet mortgage calculators answer the following questions (Microsoft Word and Excel if possible):

1. How much do you qualify to borrow (assume 28% PTI) for a
a. 15-year fixed-rate mortgage (10% down)?
b. 30-year fixed-rate mortgage (10% down)?
c. 15-year fixed-rate mortgage (20% down)?
d. 30-year fixed-rate mortgage (20% down)?

2. How much do you qualify to borrow (assume 33% PTI) for a
a. 15-year fixed-rate mortgage (10% down)?
b. 30-year fixed-rate mortgage (10% down)?
c. 15-year fixed-rate mortgage (20% down)?
d. 30-year fixed-rate mortgage (20% down)?

3. Assuming closing costs are paid from savings, do the necessary calculations to answer the following questions:
a. What is the monthly payment on a 30-year, fixed-rate loan of $100,000?
b. What is the monthly payment on a 15-year, fixed-rate loan of $100,000?
c. What is the monthly payment on an adjustable-rate loan of $100,000 for the first year?
d. How much is the total interest paid on the 30-year loan in year 5?
e. How much is the total interest paid on the 15-year loan in year 5?

4. Given the following information on the adjustable-rate loan,
o maximum rate is 12%
o months before first adjustment is 36
o months between adjustments is 12
o rate change per adjustment is 2 percent
o years before sell/pay off loan is 7
o your savings rate is 4%
o your State 1 Federal Tax Rate is 40%
h. What is the cost difference between the adjustable-rate loan and the 30-year fixed rate loan if interest rates decrease?
i. What is the cost difference between the adjustable rate loan and the 30-year fixed-rate loan if interest rates increase?
j. Which loan would you prefer? Why?

3. In the same Microsoft Word document, answer the following questions:
? What is the effective annual interest rate of the 15-year mortgage in question 1, if the discount rate is zero?
? What is the effective annual interest rate of the 15-year mortgage in question 1, if the discount rate is 2 percent?
? Your bank suffers from the typical maturity mismatch in bank assets and liabilities.
o Could your bank make more adjustable-rate loans to reduce the mismatch problem?
o What is the likely consequence of the above on the profit margin of adjustable-rate loans versus fixed-rate loans?

Solution Preview

Please find the solution below.

I have provided the link of internet mortgage calculator which I used for the calculations.

Using the following personal assumption
Monthly gross income $3,000
Money you have in savings for a down payment $25,000
Your monthly payments for all existing debts $400
Property tax rate in your area 1 percent
Hazard/home insurance rate in your area 0.5 percent
Borrower has an acceptable credit risk, with a respectable credit history
2. Assume that the bank offers the following mortgage terms and rates:
Term of loan 15 or 30 years
Down payment required 10 percent to 20 percent
Closing costs of Discount points of 1 percent
Origination fees 2 percent
Lender fees $300
Credit report cost $20
Escrow fee $300
Lender's title insurance fee $400
Recording fee $25
Appraisal report $300
Survey fee $200
Termite infestation report $50
Interest rate for a 15-year fixed mortgage 6.5 percent
Interest rate for a 30-year fixed mortgage 7.0 percent
Interest rate for 15-year adjustable-rate mortgage (ARM) 5.0 percent, adjusted every 12 months
Payment-to-income (PTI) ratio range at your bank 28 percent to 33 percent
Then, using Internet mortgage calculators, answer the following questions (Microsoft Word and Excel if possible):

I have done all solutions using internet mortgage calculators. the answer cannot be submitted in a excel file since calculations are done on internet calculators itself which cannot be copied or downloaded since it requires very high level programming to do this. I have checked the solutions twice.

I have used calculators & information from various sites among ...

Solution Summary

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