T14-1 REVIEW EXERCISES CHAPTER 14 SECTION I. Using Table 14-1 as needed, calculate the required information for the following. mortgages:

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1 T- REVIEW EXERCISES CHAPTER SECTION I Using Table - as needed, calculate the required information for the following mortgages: Amount Interest Term of Number of $,000s Table Monthly Total Financed Rate (%) Loan (years) Financed Factor Payment Interest. $80, $ $92, $72, $ $56, $30, $, $85, $5, $, $3, $96, $69.06 $53,06.60

Factor Payment Interest. $80,000 9 20 80 9.00 $720.00 $92,800.00 2. $72,500 0 30 72.5 8.78 $636.55 $56,658.00 3.

2 T-2 REVIEW EXERCISES CHAPTER SECTION I 6. Mark Batchelor purchased a home with a $78,500 mortgage at 9% for 5 years. Calculate the monthly payment and prepare an amortization schedule for the first months of Mark s loan. Payment Monthly Monthly Portion Used to Loan Number Payment Interest Reduce Principal Balance 0 $78,500 $ $ $ $78, $ $587.9 $ $78, $ $ $2.6 $77,87.22 $ $58.03 $22.75 $77, %, 5 years table factor Number of,000s financed 5 78,500, Monthly payment $ Month I 5 78, $ $ $ $ to reduce principal $78, $78,29.97 Loan balance

Payment Monthly Monthly Portion Used to Loan Number Payment Interest Reduce Principal Balance 0 $78,500 $796.78 $588.75 $208.03 $78,29.97 2 $796.78 $587.9 $209.59 $78,082.

3 T-3 REVIEW EXERCISES CHAPTER SECTION I Calculate the monthly principal and interest, PI, using Table -, and the monthly PITI for the following mortgages: Amount Interest Term of Monthly Annual Annual Monthly Financed Rate (%) Loan (years) PI Property Tax Insurance PITI 7. $76, $639.7 $,37 $ $28, $,38.60 $2,0 $,25 9. $7, $,89.79 $3,505 $,32 2 $82.39 $,689.8 $, $250, $2,85.00 $6,553 $2,96 $2,9.08

Rate (%) Loan (years) PI Property Tax Insurance PITI 7. $76,00 8 20 $639.7 $,37 $866 8. $28,800 0 5 $,38.

4 T- REVIEW EXERCISES CHAPTER SECTION I ,00.00,000 8% for 20 years Monthly PI 5 $639.7 Annual insurance Annual taxes 5,37.00 Annual TI $2, Monthly PITI $ ,800.00, % for 5 years Monthly PI 5 $,38.60 Annual insurance,25.00 Annual taxes 5 2,0.00 $3, ,38.60 Monthly PITI $, ,200.00,000 7 % for 30 years Monthly PI 5 $,89.79 Annual insurance,32.00 Annual taxes 5 3, $, ,89.79 Monthly PITI $, ,000, % for 25 years Monthly PI 5 $2,85.00 Annual insurance 2,96.00 Annual taxes 5 6, $8, ,85.00 Monthly PITI $2,9.08

60 Monthly PITI $,689.8 0. 7,200.00,000 7 % for 30 years 5 6.83 3 7.2 Monthly PI 5 $,89.79 Annual insurance,32.00 Annual taxes 5 3,505.00 $,937.00 2 5.2,89.79 Monthly PITI $,60.

5 T-5 REVIEW EXERCISES CHAPTER SECTION I. 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 % b. What is the maximum overall rate of Pam s loan? Maximum overall rate % 2. 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, % 5 70,00.00 Number of $,000s financed 5 70, ,000 9%, 30 years Table factor Monthly PI $ b. Construct an amortization schedule for the first months of Jorge s mortgage: Payment Monthly Monthly Portion Used to Loan Number Payment Interest Reduce Principal Balance $ $ $ $ $ $527.7 $527.2 $527.2 $38.72 $39.0 $39.30 $39.60 c. If the annual property taxes are $,650 and the hazard insurance premium is $780 per year, what is the total monthly PITI of Jorge s loan? Taxes 5, PI Insurance TI $2, $ Monthly PITI 5 $ $70,00.00 $70,36.28 $70, $70, $70,23.37

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?

6 T-6 REVIEW EXERCISES CHAPTER SECTION I 3. Rich Glover is shopping for a 5-year mortgage for $50,000. Currently, the Fortune Bank is offering an 8 2% mortgage with 3 discount points; the Northern Trust Bank is 3 offering an 8 % 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 % of the amount financed.) a. What is the total interest paid on each loan? Fortune Bank 8 for 5 years , %, , Total payment 5 265, Amount financed , Interest paid over life of loan 5 $5, Northern Trust Bank 3 8 % for 5 years ,500.00, , Total payment 5 270, Amount financed , Interest paid over life of loan 5 $20, b. Taking into account the closing points, which bank is offering a better deal and by how much? Fortune Bank Northern Trust Bank 5, % of 50, ,950.00, Interest points 5 $20,50.00 Interest only 5 $20, $50.00 Less(Better deal). Eduardo Padron is interested in a fixed-rate mortgage for $00,000. He is undecided whether to choose a 5- or 30-year mortgage. The current mortgage rate is 0% for the 5-year mortgage and % for the 30-year mortgage. a. What are the monthly principal and interest payments for each loan? 00,000 0% for 5 years 00,000 % for 30 years , Monthly PI 5 $, Monthly PI 5 $ b. What is the total amount of interest paid on each loan? , , , Total payments 5 93, Total payments 5 33, Amount financed 2 00, Amount financed 2 00, Total interest $93, Total interest $23, c. Overall, how much more interest is paid by choosing the 30-year mortgage? $23, , , year mortgage costs more by $9,580.00

Rich is unsure which mortgage is a better deal and has asked you to help him decide. (Remember, each discount point is equal to % of the amount financed.) a.

7 T-7 BUSINESS DECISION CHAPTER SECTION I THE CLOSING 5. 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 5-year fixed-rate mortgage at 8 % and 3 2 discount points. The annual property tax is $5,75, and the hazard insurance premium is $2,0. 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 $25.00 Credit report $65.00 Roof inspection $50.00 Mortgage insurance premium of amount financed 2 % Title search $25.00 Attorney s fees $ Escrow fee $20.00 Prepaid interest $

The down payment is 20%, and the balance will be financed with a 5-year fixed-rate mortgage at 8 % and 3 2 discount points. The annual property tax is $5,75, and the hazard insurance premium is $2,0.

8 T-8 BUSINESS DECISION CHAPTER SECTION I As Paula s real estate broker, she has asked you the following: a. What is the total monthly PITI of the mortgage loan? Amount financed 5 235, % 5 $88, for 5 years % Tax 5,75.00 Insurance 2,0.00 $7, $ PI, TI $2,52.08 Monthly PITI PI 5 $, b. What is the total amount of interest that will be paid on the loan? , , , Total interest paid on loan $50,00.00

00 3 88 % Tax 5,75.00 Insurance 2,0.00 $7,585.00 2 5 $632.08 PI,880.00 TI 632.08 $2,52.08 Monthly PITI PI 5 $,880.00 b.

9 T-9 BUSINESS DECISION CHAPTER SECTION I c. How much is due from Paula at the time of the closing? Appraisal fee $25.00 Escrow fee Credit report Prepaid int Roof Inspec Points 6, (88, ) Mortgage Ins (88, ) Down payment 7, (235, ) Title search $56,95.00 Attorney s fees Deposit 2 5, Due at closing $5,95.00 d. If your real estate office is entitled to a commission of 6 % of the price of the home from the seller, how much commission is made on the sale? $235, $5,

00 (235,000.00 3.2) Title search 25.00 $56,95.00 Attorney s fees 680.00 Deposit 2 5,000.00 Due at closing $5,95.00 d.

10 T-0 REVIEW EXERCISES CHAPTER SECTION II For the following second mortgage applications, calculate the percentage of appraised value and the potential credit: Appraised Lender s Percentage of Balance of Potential Value Percentage Appraised Value First Mortgage Credit. $8,700 75% $89, $67, $89,00 65% $58,0.00 $37, $,200 80% $2, $99,00. $32,600 75% $23,50.00 $97, $98,000 65% $63, $66,000 0 $2,25.00 $20,30.00 $3, $5,950.00

Appraised Value First Mortgage Credit. $8,700 75% $89,025.00 $67,900 2. $89,00 65% $58,0.00 $37,800 3.

11 T- REVIEW EXERCISES CHAPTER SECTION II For the following mortgage applications, calculate the housing expense ratio and the total obligations ratio: Monthly Monthly Other Monthly Housing Total Gross (PITI) Financial Expense Obligations Applicant Income Expense Obligations Ratio (%) Ratio (%) 6. Johnson $2,000 $55 $ Kim $3,700 $530 $ Turnberry $3,00 $705 $ Gomez $,800 $,250 $ Black $2,900 $6 $

Obligations Applicant Income Expense Obligations Ratio (%) Ratio (%) 6. Johnson $2,000 $55 $380 7.

12 T-2 REVIEW EXERCISES CHAPTER SECTION II. From the lending ratio guidelines on page 83, a. Which of the applicants in Questions 6 0 would not qualify for a conventional mortgage? 6 and 8 Johnson and Turnberry b. Which of the applicants in Questions 6 0 would not qualify for any mortgage? 6 and 8 Johnson and Turnberry 2. The Hamptons own a home that was recently appraised for $29,000. The balance on their existing first mortgage is $3,250. 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? $29, $2, $3, $ Potential credit available Roxanne Pleace is thinking about building an addition on her home. The house was recently appraised at $5,000, 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? $5, $07, $88, Potential credit available 5 $9, No to the addition

The Hamptons own a home that was recently appraised for $29,000. The balance on their existing first mortgage is $3,250.

13 T-3 BUSINESS DECISION CHAPTER SECTION II QUALIFYING THE BORROWER. 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 $, His other financial obligations total $65.50 per month. Butch earns a gross income of $, per month. a. What is his housing expense ratio? Housing expense ratio 5,259.00, % b. What is his total obligations ratio?, Total obligations ratio 5, % c. According to the lending ratio guidelines on page 83, 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, % X.36X 5,93.50 X 5 5, , , $25.28 additional monthly income needed

Butch earns a gross income of $,890.00 per month. a. What is his housing expense ratio? Housing expense ratio 5,259.00,890.00 5 25.75% b. What is his total obligations ratio?,259.00 65.

Loan Estimate. Loan Terms. Projected Payments. Costs at Closing. Save this Loan Estimate to compare with your Closing Disclosure.

Loan Estimate. Loan Terms. Projected Payments. Costs at Closing. Save this Loan Estimate to compare with your Closing Disclosure. Loan Estimate DATE ISSUED APPLICANTS PROPERTY SALE PRICE Loan Terms Save this Loan Estimate to compare with your Closing Disclosure. LOAN TERM 30 years PURPOSE Purchase PRODUCT 5 Year Interest Only, 5/3