Mortgages

Question 1

(15 points)

1. Using the internet, research and find a house listing that you would not mind living in. Any house will work, but it must be selling for more than \$10,000.

a) Post a link to your house listing. You can also cut and paste a .jpeg file of your listing.

b) You decide to buy this house. Assuming the bank can loan you a 30-year mortgage at the yearly interest rate of Current Prime Rate + 3%, how much are your monthly payments (show all calcuations?)

c) If you were to borrow the money instead for 15 years (at the same interest rate as in part b), how much are your mothly payments?

Question 2

(5 points)

2. Using the house listing you found in Question 2, as well as your calculated monthly payments in Question 2, how much do you pay in interest over the life of the 30-year loan?

Question 3

(10 points)

3. You find a great deal for your house! The bank agrees to give you a 5 year loan where you only pay \$100 a month, and at 0% interest. What can go wrong? However, when 5 years pass you realize you agreed to a balloon mortgage, and all the rest of that loan is due right now. How much do you need to pay for your final (60th) payment? Explain how you got your answer and your reasoning behind it.

Essay

(15 points)

4. Mortgages come in many different types. There are fixed rate mortgages, ARM mortgages, and balloon mortgages to name a few.

Research fixed rate, ARM mortgages and balloon mortgages, then write an essay comparing them. What are some of the advantages and disadvantages of each? When might you find one type of mortgage loan beneficial over the other two?

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