REVIEW EXERCISES
|
CHAPTER 14—SECTION I
1. $80,000
2. $72,500
3. $130,900
4. $154,300
5. $96,800
Amount
Financed
9
10
8 12
9 14
7 34
Interest
Rate (%)
20
30
25
15
30
Term of
Loan (years)
Table
Factor
9.00
8.78
8.06
10.30
7.17
Number of $1,000s
Financed
80
72.5
130.9
154.3
96.8
$720.00
$636.55
$1,055.05
$1,589.29
$694.06
Monthly
Payment
$92,800.00
$156,658.00
$185,615.00
$131,772.20
$153,061.60
Total
Interest
Using Table 14-1 as needed, calculate the required information for the following
mortgages:
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T14-2
REVIEW EXERCISES | CHAPTER 14—SECTION I
6. Mark Batchelor purchased a home with a $78,500 mortgage at 9% for 15 years. Calculate the monthly payment and prepare an amortization schedule for the first 4
months of Mark’s loan.
Payment
Number
0
1
2
3
4
Monthly
Payment
$796.78
$796.78
$796.78
$796.78
Monthly
Interest
$588.75
$587.19
$585.62
$584.03
9%, 15 years table factor 5 10.15
78,500
5 78.5
Number of 1,000s financed 5
1,000
Monthly payment 5 78.5 3 10.15 5 $796.78
Month 1
1
I 5 78,500 3 .09 3 5 $588.75
2
$796.78 2 $588.75 5 $208.03 to reduce principal
$78,500 2 208.03 5 $78,291.97 Loan balance
Portion Used to
Reduce Principal
$208.03
$209.59
$211.16
$212.75
Loan
Balance
$78,500
$78,291.97
$78,082.38
$77,871.22
$77,658.47
REVIEW EXERCISES
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CHAPTER 14—SECTION I
20
15
30
25
8
10
7 14
9 12
7. $76,400
8. $128,800
9. $174,200
10. $250,000
Amount Interest
Term of
Financed Rate (%) Loan (years)
$2,185.00
$1,189.79
$6,553
$3,505
$2,196
$1,432
$2,914.08
$1,601.21
$821.39
$1,689.18
$866
$1,215
$639.47
$1,384.60
$1,317
$2,440
Monthly
PITI
Monthly
Annual
Annual
PI
Property Tax Insurance
Calculate the monthly principal and interest, PI, using Table 14-1, and the monthly PITI
for the following mortgages:
T14-3
8.
7.
128,800.00
5 128.8
1,000
10% for 15 years 5 10.75 3 128.8
Monthly PI
5 $1,384.60
Annual insurance
1,215.00
Annual taxes
5 2,440.00
$3,655.00 4 12 5
304.58
1 1,384.60
Monthly PITI
$1,689.18
Monthly PITI
181.92
1 639.47
$821.39
10.
9.
REVIEW EXERCISES
76,400.00
5 76.4
1,000
8% for 20 years 5 8.37 3 76.4
5 $639.47
Monthly PI
Annual insurance
866.00
Annual taxes 5 1,317.00
Annual TI
$2,183.00 4 12 5
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CHAPTER 14—SECTION I
250,000
5 250
1,000
1
9 % for 25 years 5 8.74 3 250
2
Monthly PI
5 $2,185.00
Annual insurance
2,196.00
5 6,553.00
Annual taxes
$8,749.00 4 12 5
729.08
1 2,185.00
Monthly PITI
$2,914.08
174,200.00
5 174.2
1,000
1
7 % for 30 years 5 6.83 3 174.2
4
Monthly PI
5 $1,189.79
Annual insurance
1,432.00
Annual taxes
5 3,505.00
$4,937.00 4 12 5
411.42
1 1,189.79
Monthly PITI
$1,601.21
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T14-5
REVIEW EXERCISES | CHAPTER 14—SECTION I
11. Pam Jeffries bought a home with an adjustable-rate mortgage. The margin on the loan
is 3.5%, and the rate cap is 8% over the life of the loan.
a.
If the current index rate is 3.75%, what is the calculated interest rate of the
ARM?
Calculated interest rate of ARM
3.75
1 3.50
7.25%
b.
What is the maximum overall rate of Pam’s loan?
Maximum overall rate
7.25
1 8.00
15.25%
12. Jorge Rivas purchased a condominium for $88,000. He made a 20% down payment
and financed the balance with a 30-year, 9% fixed-rate mortgage.
a.
What is the amount of the monthly principal and interest portion, PI, of Jorge’s
loan?
Amount financed 5 88,000.00 3 80% 5 70,400.00
70,400.00
5 70.4
Number of $1,000s financed 5
1,000
9%, 30 years Table factor 5 8.05
Monthly PI 5 8.05 3 70.4 5 $566.72
b.
Construct an amortization schedule for the first 4 months of Jorge’s mortgage:
Payment
Number
0
1
2
3
4
c.
Monthly
Payment
$566.72
$566.72
$566.72
$566.72
Monthly
Interest
$528.00
$527.71
$527.42
$527.12
Portion Used to
Reduce Principal
$38.72
$39.01
$39.30
$39.60
Loan
Balance
$70,400.00
$70,361.28
$70,322.27
$70,282.97
$70,243.37
If the annual property taxes are $1,650 and the hazard insurance premium is $780
per year, what is the total monthly PITI of Jorge’s loan?
Taxes
5 1,650.00
Insurance 5 1 780.00
$2,430.00 4 12 5 $202.50
PI
5 566.72
TI
5 202.50
Monthly PITI 5 $769.22
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REVIEW EXERCISES | CHAPTER 14—SECTION I
13. Rich Glover is shopping for a 15-year mortgage for $150,000. Currently, the Fortune
Bank is offering an 8 12% mortgage with 3 discount points; the Northern Trust Bank is
offering an 8 34% mortgage with no points. Rich is unsure which mortgage is a better
deal and has asked you to help him decide. (Remember, each discount point is equal
to 1% of the amount financed.)
a.
What is the total interest paid on each loan?
Fortune Bank
1
8 % for 15 years 5 9.85 3 150 5 1,477.50
2
1,477.50 3 180 5 265,950.00
Total payment 5 265,950.00
Amount financed 5 2 150,000.00
Interest paid over life of loan 5 $115,950.00
Northern Trust Bank
3
8 % for 15 years 5 10.00 3 150 5 1,500.00
4
1,500.00 3 180 5 270,000.00
Total payment 5 270,000.00
Amount financed 5 2 150,000.00
Interest paid over life of loan 5 $120,000.00
Taking into account the closing points, which bank is offering a better deal and
by how much?
Northern Trust Bank
Fortune Bank
115,950.00 1 3% of 150,000.00
115,950.00 1 4,500.00
Interest only 5 $120,000.00 $450.00 Less ( Better deal )
Interest 1 points 5 $120,450.00
b.
14. Eduardo Padron is interested in a fixed-rate mortgage for $100,000. He is undecided
whether to choose a 15- or 30-year mortgage. The current mortgage rate is 10% for
the 15-year mortgage and 11% for the 30-year mortgage.
a.
What are the monthly principal and interest payments for each loan?
100,000 10% for 15 years 100,000 11% for 30 years
9.53 3 100 5 953.00
10.75 3 100 5 1,075.00
Monthly PI 5 $953.00
Monthly PI 5 $1,075.00
b.
What is the total amount of interest paid on each loan?
15 3 12
5 180
30 3 12
5
360
180 3 1,075.00
5 193,500.00
360 3 953.00
5
343,080.00
Total payments 5 193,500.00
Total payments 5
343,080.00
2 100,000.00
Amount financed 2 100,000.00
Amount financed
$93,500.00
$243,080.00
Total interest
Total interest
c.
Overall, how much more interest is paid by choosing the 30-year mortgage?
$243,080.00 2 93,500.00 5 149,580.00
30-year mortgage costs more by $149,580.00
BUSINESS DECISION
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CHAPTER 14—SECTION I
15. You are a real estate broker for Renaissance Realty. One of your clients,
Paula Stephenson, has agreed to purchase one of the homes your office has
listed for sale for a negotiated price of $235,000. The down payment is 20%,
and the balance will be financed with a 15-year fixed-rate mortgage at 8 43
% and 3 12 discount points. The annual property tax is $5,475, and the hazard insurance premium is $2,110. When Paula signed the original contract,
she put down a deposit of $5,000, which will be credited to her down payment. In addition, at the time of closing Paula must pay the following expenses:
Appraisal fee
$215.00
Credit report
$65.00
Roof inspection
$50.00
1
% of amount financed
Mortgage insurance premium
2
Title search
$125.00
Attorney’s fees
$680.00
Escrow fee
$210.00
Prepaid interest
$630.00
THE CLOSING
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BUSINESS DECISION
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b.
What is the total amount of interest that will be paid on the loan?
15 3 12 5 180
180 3 1,880.00 5 338,400.00
2 188,000.00
Total interest paid on loan $150,400.00
Tax
5,475.00
Insurance 2,110.00
$7,585.00 4 12 5 $632.08
What is the total monthly PITI of the mortgage loan?
Amount financed 5 235,000 3 80%
5 $188,000.00
3
8 % for 15 years 5 10.00 3 188
4
PI 5 $1,880.00
a.
PI 1,880.00
TI 1 632.08
$2,512.08 Monthly PITI
CHAPTER 14—SECTION I
As Paula’s real estate broker, she has asked you the following:
T14-8
d.
c.
BUSINESS DECISION
|
$215.00
65.00
50.00
940.00 (188,000.00 3 .005)
125.00
680.00
Deposit
Due at closing
Escrow fee
Prepaid int.
Points
Down payment
If your real estate office is entitled to a commission of 6 12 % of the price of the
home from the seller, how much commission is made on the sale?
$235,000.00 3 .065 5 $15,275.00
Appraisal fee
Credit report
Roof Inspec.
Mortgage Ins.
Title search
Attorney’s fees
210.00
630.00
6,580.00 (188,000.00 3 .035)
1 47,000.00 (235,000.00 3 .2)
$56,495.00
2 5,000.00
$51,495.00
CHAPTER 14—SECTION I
How much is due from Paula at the time of the closing?
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REVIEW EXERCISES
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CHAPTER 14—SECTION II
Lender’s
Percentage
75%
65%
80%
75%
65%
Appraised
Value
$118,700
$89,400
$141,200
$324,600
$98,000
1.
2.
3.
4.
5.
Balance of
First Mortgage
$67,900
$37,800
$99,100
$197,500
$66,000
Percentage of
Appraised Value
$89,025.00
$58,110.00
$112,960.00
$243,450.00
$63,700.00
0
$45,950.00
$13,860.00
$20,310.00
$21,125.00
Potential
Credit
For the following second mortgage applications, calculate the percentage of appraised
value and the potential credit:
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REVIEW EXERCISES
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CHAPTER 14—SECTION II
6.
7.
8.
9.
10.
Monthly
Gross
Income
$2,000
$3,700
$3,100
$4,800
$2,900
Applicant
Johnson
Kim
Turnberry
Gomez
Black
$455
$530
$705
$1,250
$644
Monthly
(PITI)
Expense
$380
$360
$720
$430
$290
Other Monthly
Financial
Obligations
Total
Obligations
Ratio (%)
41.75
24.05
45.97
35
32.21
Housing
Expense
Ratio (%)
22.75
14.32
22.74
26.04
22.21
For the following mortgage applications, calculate the housing expense ratio and the
total obligations ratio:
T14-11
T14-12
REVIEW EXERCISES | CHAPTER 14—SECTION I I
11. From the lending ratio guidelines on page 483,
a.
Which of the applicants in Questions 6–10 would not qualify for a conventional
mortgage?
6 and 8 Johnson and Turnberry
b.
Which of the applicants in Questions 6–10 would not qualify for any mortgage?
6 and 8 Johnson and Turnberry
12. The Hamptons own a home that was recently appraised for $219,000. The balance on
their existing first mortgage is $143,250. If their bank is willing to loan up to 65% of
the appraised value, what is the potential amount of credit available to the Hamptons
on a home equity loan?
$219,000.00 3 .65 5
$142,350.00
2 $143,250.00
2$900.00
0
Potential credit available 5
13. Roxanne Pleace is thinking about building an addition on her home. The house was
recently appraised at $154,000, and the balance on her existing first mortgage is $88,600.
If Roxanne’s bank is willing to loan 70% of the appraised value, does she have enough
equity in the house to finance a $25,000 addition?
$154,000.00 3 .70 5
$107,800.00
2 $88,600.00
Potential credit available 5 $19,200.00
No to the addition
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BUSINESS DECISION | CHAPTER 14—SECTION I I
QUALIFYING THE BORROWER
14. You are a mortgage broker at The Gold Mine Bank. One of your clients, Butch Porter,
has submitted an application for a mortgage with a monthly PITI of $1,259.00. His
other financial obligations total $654.50 per month. Butch earns a gross income of
$4,890.00 per month.
a.
What is his housing expense ratio?
1,259.00
5 25.75%
Housing expense ratio 5
4,890.00
b.
What is his total obligations ratio?
1,259.00 1 654.50
5 39.13%
Total obligations ratio 5
4,890.00
c.
According to the lending ratio guidelines on page 483, for what type of mortgage
would Butch qualify, if any?
He qualifies for an FHA mortgage.
d.
If Butch decided to get a part time job so that he could qualify for a conventional
mortgage, how much additional monthly income would he need?
X 5 gross income required to qualify for conventional mortgage
1,259.00 1 654.50
5 36%
X
.36X 5 1,913.50
X 5 5,315.28
5,315.28 2 4,890.00 5 $425.28 additional monthly income needed