Unit 8: Instructor Graded Assignment
Mortgages
In this and future Instructor Graded Assignments you will be asked to use the answers you found in the Unit 1 Assignment.
Note: For these questions you need to cite a reliable source for information, which means you cannot use sites like Wikipedia, Ask.com®, and Yahoo® answers. If you do use those sites the instructor may award 0 points for your response.
The Assignment problems must have the work shown at all times. The steps for solving the problems must be explained. Failure to do so could result in your submission being given a 0. If you have any questions about how much work to show, please contact your instructor.
Assignments must be submitted as a Microsoft Word® document and uploaded to the Dropbox for Unit 8. Please type all answers directly in this Assignment below the question it applies to.
All Assignments are due by Tuesday at 11:59 PM ET of the assigned Unit.
Note: All interest rates are to be assumed to be yearly interest rates.
For this assignment you will need the prime interest rate, as posted in the Wall Street Journal®.
Use the internet to search for the current prime interest rate.
· List the current prime interest rate:_______________
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?
Requirements for essay
· Write your essay in this document – do not save it in a separate file.
· You must clearly state your position with well-structured paragraphs using proper grammar, spelling, and sentence structure.
· This is not an “opinion” question – you must offer evidence to support your position, using properly-cited sources
· Your answer must be between ¾-1 page in length.
· You must cite and reference at least one source (book, website, periodical) using APA format.
· Do not use unreliable sources such as Wikipedia, and Yahoo! Answers.
Also I need a responses for the following classmates
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Banks may sell real estate loans base on funding ability. The cost of funding can also be a factor. Many time the cost of funding of a bank does not allow them to compete for loan rates. They can then originate the loan and sell it to a secondary market lender for fee income. This is beneficial for the borrower due to the fact that they can lock a lower rate in for a longer term. Keeping a loan in house at the originating bank may have some benefits however. Many times the loan rate is a bit higher but there many not be many of the up front cost associated with secondary market lenders.
In a reverse mortgage, the lender pays the homeowner a monthly payment. The homeowner continues to pay the property insurance as well as the real estate taxes. The borrower must be 62 years or older. The home must be owned free and clear or the existing loan must be paid off by the reverse mortgage to ensure that it is clear. Basically you are borrowing money based on the equity of your home. The loan is settled at the time of death where the property is sold, the loan is paid off and any equity beyond the loan is dispersed through the estate. This can be a good option for the homeowner depending on their family situation and needs for money in their senior years.
Reference
http://reversemortgageguides.org/lp/how-does-a-reverse-mortgage-work/?leadint_source=YahooPPC&utm_source=Bing-PPC&utm_medium=cpc&utm_campaign=New%20-%20USA%20-%20Long%20Tail&utm_term=lenders%20reverse%20mortgages&utm_content=what%20is%20a%20reverse%20mortgage
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Good day Professor and class,
According to the Credit InfoCenter.com, simply stated, mortgage lenders make more money when they sell a mortgage because they make a commission on it. For example when “a bank makes a "point" on a package of loans worth one million dollars they will make $10,000 dollars (1% of $1,000,000), an immediate profit by selling them” (para.4). It is beneficial for the bank because these are feed-up funds the bank can now loan to other consumers and the banker continues to make a profit. Through my research, I could not find anything “bad” per se, about a lender selling a borrower’s loan. I personally believe it would be difficult for a borrower to follow who has control of their mortgage especially if their loan is sold many times. Other than that as long as the mortgage loan and/or contact was followed, I do not see the bad side to a lender selling a mortgage. I believe if a lender can make money on top of money, legally, then they are going to do it no matter what. If this includes selling someone’s mortgage to turn a profit, so be it. As stated by the Federal Trade Commission (FTC), a reverse mortgage is only for individuals “62 years old or older, who need money to finance a home improvement, pay off a current mortgage, supplement retirement income or pay for healthcare expenses. A reverse mortgage allows mature adults to convert part of the equity in their home to cash, without having to sell their home or pay additional monthly bills” (FTC. para.1). This type of loan is called a reverse mortgage because the way a borrower pays for this mortgage is reversed. With a reverse mortgage, the lender makes payments to the borrower of the loan not the other way around. For the most part if an individual can afford this type of loan as a mature adult, as stated above, there are many benefits to a reverse mortgage. However, the FTC states certain types of reverse mortgages can be quite expensive and more so than a regular home mortgage. But as I stated earlier if one can afford it, is a great way to get some extra cash (FTC, para.4).
ReferencesFederal Trade Commission, Consumer Information (2011, March). Reverse Mortgages. Retrieved from http://www.consumer.ftc.gov/articles/0192-reverse-mortgagesThe MortgageProfessor.com. (2009, June 30). Why Do Most Lenders Sell Their Mortgages? Retrieved from http://www.mtgprofessor.com/A%20-%20Type%20of%20Loan%20Provider/why_do_most_lenders_sell_their_mortgages.htmCredit InfoCenter.com. (2011, May 25). Why Do the Banks Keep Selling My Mortgage Loan? Retrieved from http://www.creditinfocenter.com/mortgage/sellloans.shtmlHave a great day all,Jenn
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princess68
unit8discussionandresponses.docx
