Brooklyn BUSN 17536 – If you buy a home all of your mortgage
Subject: Business / General Business
Question
QUESTION 1
If you buy a home all of your mortgage payments you make will increase the value of your equity in the home by that same amount.
True
False
6.66667 points
QUESTION 2
If you issued a 5/1 adjustable rate mortgage in 2007 that had an interest rate indexed to the Fed Funds rate, then over the last 8 years you experienced a tremendous increase the interest you owed every year.
True
False
6.66667 points
QUESTION 3
You are interested in buying a house that costs $300,000. You plan to make a 20% down payment and borrow 80% of the purchase price. You will issue a mortgage loan (yes, the borrower is the issuer of the mortgage loan) to the bank who is lending you the money. The term of the mortgage loan is 15 years. The interest rate is fixed at 5% per year. Let’s assume yearly rather than monthly payments for this problem set. Keep in mind that your mortgage loan will be fully amortized (paid off) after the end of fifteen years.
What are your total pretax monthly mortgage payments:
Here are the Excel terms that you will need to calculate your pre-tax mortgage payments:
rate: 5%
nper:15
pv: $240,000
fv: 0
type: 0
$17,890.10
$23,122.15
$5,868.05
$22,345.16
$17.254.10
6.66667 points
QUESTION 4
You are interested in buying a house that costs $300,000. You plan to make a 20% down payment and borrow 80% of the purchase price. You will issue a mortgage loan (yes, the borrower is the issuer of the mortgage loan) to the bank who is lending you the money. The term of the mortgage loan is 15 years. The interest rate is fixed at 5% per year. Let’s assume yearly rather than monthly payments for this problem set. Keep in mind that your mortgage loan will be fully amortized (paid off) after the end of fifteen years.
What is the amount of principal you will owe at the end of year 10? You should use the “PPMT” function in EXCEL.
$17,122.15
$5,921.05
$17,254.10
$16,000
6.66667 points
QUESTION 5
You are interested in buying a house that costs $300,000. You plan to make a 20% down payment and borrow 80% of the purchase price. You will issue a mortgage loan (yes, the borrower is the issuer of the mortgage loan) to the bank who is lending you the money. The term of the mortgage loan is 15 years. The interest rate is fixed at 5% per year. Let’s assume yearly rather than monthly payments for this problem set. Keep in mind that your mortgage loan will be fully amortized (paid off) after the end of fifteen years.
Assume your marginal tax rate is 20%. What is the after tax mortgage interest payment you will owe at the end of year 10?
$4,694.44
$1,173,61
$5,868.05
$4,850.62
6.66667 points
QUESTION 6
You are trying to decide between financing a home with a 15 year fixed rate mortgage that has a 5% interest rate and a 30 year fixed rate mortgage that has a6.5% interest rate. In both cases you finance $320,000. In both cases the loan requires monthly payments of interest and principal. If your objective is build up home equity as quickly as possible you would select the 15 year fixed rate mortgage.
True
False
6.66667 points
QUESTION 7
You buy a home that has a price of $400,000. You finance the purchase by issuing a mortgage loan to Wells Fargo Bank for the amount of $320,000. You finance the $80,000 from money in your checking account. At the time you become the owner of the property (closing date of the transaction) your equity in the property is $80,000.
True
False
6.66667 points
QUESTION 8
You buy a home that has a price of $400,000. You finance the purchase by issuing a fixed rate 15 year mortgage that has a 5% interest rate for the amount of $320,000. Wells Fargo is the lender. You make monthly payments of principal and interest. You finance the $80,000 from money in your checking account. After one year the value of your home has appreciated by $10,000. Your equity stake in the property has increased by $30,000.
True
False
6.66667 points
QUESTION 9
You have issued a 30 year a fixed rate mortgage loan to finance the purchase of a home. Interest rates decline every year for four years after you have issued the mortgage loan. You are now locked into paying an interest rate that is above the market rate. There is no way out of this financial contract until the maturity date of the mortgage (thirty years from origination).
True
False
6.66667 points
QUESTION 10
Base your answer on the following information:
https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#filters=10248&request=ZR-BPLKWMWP&purpose=Purchase”e=ZQ-YBNQDWJN
This 5/1 ARM exposes the borrower to unlimited increases in interest rates as LIBOR increases.
True
False
6.66667 points
QUESTION 11
Base your answer on the following information:
https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#filters=10248&request=ZR-BPLKWMWP&purpose=Purchase”e=ZQ-YBNQDWJN
Borrower fees paid at the origination of this mortgage are less than $500 because the interest rate risk is shifted from the lender to the borrower.
True
False
6.66667 points
QUESTION 12
Base your answer on the following information:
https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#filters=10248&request=ZR-BPLKWMWP&purpose=Purchase”e=ZQ-YBNQDWJN
The mortgage rate is on this 5/1 ARM is 225 basis points higher than the index until it reaches its lifetime cap.
True
False
6.66667 points
QUESTION 13
Base your answer on the following information:
https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#filters=10248&request=ZR-BPLKWMWP&purpose=Purchase”e=ZQ-YBNQDWJN
The rate on this 5/1 adjustable rate mortgage has no fixed period. The rate can adjust from the day you borrow the funds.
True
False
6.66667 points
QUESTION 14
Base your answer on the following information:
https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#filters=10248&request=ZR-BPLKWMWP&purpose=Purchase”e=ZQ-YBNQDWJN
The APR is greater than the annual mortgage rate because the APR accounts for fees that must be paid. The fees paid will lower the PV (loan balance) and thus boosts the actual rate the borrower is paying.
True
False
6.66667 points
QUESTION 15
The development of interesting accessible public space that a community values will increase the value of private property in the neighborhood.
True
False
