Concept explainers
Case summary:
This case discusses the circumstances that to have be encountered by a mortgage business broker. Person JC is a new mortgage business broker and her cousin MK has approached to have a mortgage for a house that is being built. The house construction has to be completed in three months and he needs the mortgage at the completion stage of the house. The requirement of person MK is 25-year, $400,000 fixed-rate mortgage to be repaid on a monthly basis.
Person JC has agreed to lend the money at the present market rate of 6%. Due to having insufficient fund with the person JC, he has approached the person IT, the President of IT Insurance Corporation for purchasing mortgage. Person IT has agreed the demand of person JC except on the price of the mortgage because he is unwilling to set a price on the mortgage loan, but rather he does agree in writing to purchase the mortgage at the market rate in three months. Moreover, the market has Treasury bond futures contract with a face value of $100,000 per contract at a maturity of three months.
Characters in the case:
- Person JC: Owner of the mortgage business
- Person MK: Customer of JC
- Person IT: President of IT Insurance Corporation
- Company IT: An insurance corporation
To determine: The monthly payment of the mortgage.
Want to see the full answer?
Check out a sample textbook solutionChapter 23 Solutions
FUND OF CORPORATE FINANCE LL W/ACCESS
- How is a home mortgage an example of Time Value of Money? What would you expect the impact of varying terms (years needed to pay off the loan) and rates to be using TVM rules? Why do homeowners sometimes refinance their mortgages?arrow_forwardWhat is the total interest paid on this mortgage over the 10 year term?arrow_forwardIf Martin’s required rate of return is 1% per month, which of the two mortgage terms will he choose?arrow_forward
- A customer has a first mortgage of $100,000 at 5.5% and a second mortgage of $50,000 at 7.8%. What is the average rate of mortgage that the customer pays?arrow_forwardWhat is the current total of all of Quentin's minimum monthly payments?arrow_forwardSuppose you have a 20 year mortgage for $493,194 with monthly payments of $29895. What is the total amount of interest you paid for your mortgage?arrow_forward
- Consider a home mortgage of $ at a fixed APR of % for years. a. Calculate the monthly payment. b. Determine the total amount paid over the term of the loan. c. Of the total amount paid, what percentage is paid toward the principal and what percentage is paid for interest.arrow_forwardSuppose a family has a gross annual income of $43,200. a. What is the maximum amount the family should spend each month on a mortgage payment? b. What is the maximum amount the family should spend each month for total credit obligations? c. If the family's monthly mortgage payment is 80%of the maximum they can afford, what is the maximum amount they should spend each month for all other debt?arrow_forwardWhat are the monthly mortgage payments for the each loan option ......Rachel and Tom Baker are your friends with whom you have attended the same Bible study for several years. You are a mortgage originator for the XYZ Mortgage Brokerage, Inc., and the Bakers have come to you for advice concerning the possibility of refinancing their existing mortgage. Their current 30-year, fixed-rate mortgage was originally issued for $300,000 at a rate of 6.000%. They have owned their home for 15 years and their current mortgage balance is $213,150. You have identified the following mortgage options for the Bakers: • 30-Year Fixed-Rate; 5.125%; $1,000 cash required at closing • 15-Year Fixed-Rate; 4.500%; $5,000 cash required at closing • 5/1 ARM; 4.375% (2% cap per year; 10% life); $4,500 cash required at closingarrow_forward
- Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning