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FinanceFundamentals of Financial Management, Concise Edition (MindTap Course List)AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT You want to buy a house that costs $140,000. You have $14,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $126,000. However, the realtor persuades the seller to take a $126,000 mortgage (called a seller take-back mortgage) at a rate of 5%, provided the loan is paid off in full in 3 years. You expect to inherit $140,000 in 3 years; but right now all you have is $14,000, and you can afford to make payments of no more than $22,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.) a. If the loan was amortized over 3 years, how large would each annual payment be? Could you afford those payments? b. If the loan was amortized over 30 years, what would each payment be? Could you afford those payments? c. To satisfy the seller, the 30-year mortgage loan would be written as a balloon note, which means that at the end of the third year, you would have to make the regular payment plus the remaining balance on the loan. What would the loan balance be at the end of Year 3, and what would the balloon payment be?BuyFind*arrow_forward*

9th Edition

Eugene F. Brigham + 1 other

Publisher: Cengage Learning

ISBN: 9781305635937

Chapter 5, Problem 35P

Textbook Problem

**AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT** You want to buy a house that costs $140,000. You have $14,000 for a down payment, but your credit is such that mortgage companies will not lend you the required $126,000. However, the realtor persuades the seller to take a $126,000 mortgage (called a seller take-back mortgage) at a rate of 5%, provided the loan is paid off in full in 3 years. You expect to inherit $140,000 in 3 years; but right now all you have is $14,000, and you can afford to make payments of no more than $22,000 per year given your salary. (The loan would call for monthly payments, but assume end-of-year annual payments to simplify things.)

- a. If the loan was amortized over 3 years, how large would each annual payment be? Could you afford those payments?
- b. If the loan was amortized over 30 years, what would each payment be? Could you afford those payments?
- c. To satisfy the seller, the 30-year mortgage loan would be written as a balloon note, which means that at the end of the third year, you would have to make the regular payment plus the remaining balance on the loan. What would the loan balance be at the end of Year 3, and what would the balloon payment be?

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

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Ch. 5 - What is an opportunity cost? How is this concept...Ch. 5 - Explain whether the following statement is true or...Ch. 5 - If a firms earnings per share grew from 1 to 2...Ch. 5 - Would you rather have a savings account that pays...Ch. 5 - To find the present value of an uneven series of...Ch. 5 - The present value of a perpetuity is equal to the...Ch. 5 - Banks and other lenders are required to disclose a...Ch. 5 - What is a loan amortization schedule, and what are...Ch. 5 - FUTURE VALUE If you deposit 2,000 in a bank...Ch. 5 - PRESENT VALUE What is the present value of a...

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