Brooklyn BUSN 17536 - If you buy a home all of your

mortgage
Brooklyn BUSN 17536 - If you buy a home all of your mortgage

Question
QUESTION 1

1.

If you buy a home all of your mortgage payments you make will increase the value of
your equity in the home by that same amountQUESTION 1

1.

If you buy a home all of your mortgage payments you make will increase the
value of your equity in the home by that same amount.

True

False

6.66667 points

QUESTION 2

1.

If you issued a 5/1 adjustable rate mortgage in 2007 that had an interest rate
indexed to the Fed Funds rate, then over the last 8 years you experienced a
tremendous increase the interest you owed every year.

True

False

6.66667 points

QUESTION 3

1.

1/8
 You are interested in buying a house that costs $300,000. You plan to make a
20% down payment and borrow 80% of the purchase price. You will issue a
mortgage loan (yes, the borrower is the issuer of the mortgage loan) to the bank
who is lending you the money. The term of the mortgage loan is 15 years. The
interest rate is fixed at 5% per year. Let’s assume yearly rather than monthly
payments for this problem set. Keep in mind that your mortgage loan will be fully
amortized (paid off) after the end of fifteen years.

What are your total pretax monthly mortgage payments:

Here are the Excel terms that you will need to calculate your pre-tax mortgage
payments:

rate: 5%
nper:15
pv: $240,000
fv: 0
type: 0

$17,890.10

$23,122.15

$5,868.05

$22,345.16

$17.254.10

6.66667 points

QUESTION 4

1.

You are interested in buying a house that costs $300,000. You plan to make a
20% down payment and borrow 80% of the purchase price. You will issue a
mortgage loan (yes, the borrower is the issuer of the mortgage loan) to the bank
who is lending you the money. The term of the mortgage loan is 15 years. The
interest rate is fixed at 5% per year. Let’s assume yearly rather than monthly
2/8
 payments for this problem set. Keep in mind that your mortgage loan will be fully
amortized (paid off) after the end of fifteen years.

What is the amount of principal you will owe at the end of year 10? You should
use the “PPMT” function in EXCEL.

$17,122.15

$5,921.05

$17,254.10

$16,000

6.66667 points

QUESTION 5

1.

You are interested in buying a house that costs $300,000. You plan to make a
20% down payment and borrow 80% of the purchase price. You will issue a
mortgage loan (yes, the borrower is the issuer of the mortgage loan) to the bank
who is lending you the money. The term of the mortgage loan is 15 years. The
interest rate is fixed at 5% per year. Let’s assume yearly rather than monthly
payments for this problem set. Keep in mind that your mortgage loan will be fully
amortized (paid off) after the end of fifteen years.

Assume your marginal tax rate is 20%. What is the after tax mortgage interest
payment you will owe at the end of year 10?

$4,694.44

$1,173,61

$5,868.05
3/8
 $4,850.62

6.66667 points

QUESTION 6

1.

You are trying to decide between financing a home with a 15 year fixed rate
mortgage that has a 5% interest rate and a 30 year fixed rate mortgage that has
a6.5% interest rate. In both cases you finance $320,000. In both cases the loan
requires monthly payments of interest and principal. If your objective is build up
home equity as quickly as possible you would select the 15 year fixed rate
mortgage.

True

False

6.66667 points

QUESTION 7

1.

You buy a home that has a price of $400,000. You finance the purchase by
issuing a mortgage loan to Wells Fargo Bank for the amount of $320,000. You
finance the $80,000 from money in your checking account. At the time you
become the owner of the property (closing date of the transaction) your equity in
the property is $80,000.

True

False

6.66667 points

QUESTION 8

1.

4/8
 You buy a home that has a price of $400,000. You finance the purchase by
issuing a fixed rate 15 year mortgage that has a 5% interest rate for the amount
of $320,000. Wells Fargo is the lender. You make monthly payments of principal
and interest. You finance the $80,000 from money in your checking account.
After one year the value of your home has appreciated by $10,000. Your equity
stake in the property has increased by $30,000.

True

False

6.66667 points

QUESTION 9

1.

You have issued a 30 year a fixed rate mortgage loan to finance the purchase of
a home. Interest rates decline every year for four years after you have issued the
mortgage loan. You are now locked into paying an interest rate that is above the
market rate. There is no way out of this financial contract until the maturity date
of the mortgage (thirty years from origination).

True

False

6.66667 points

QUESTION 10

1.

Base your answer on the following information:

https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#
filters=10248&request=ZR-BPLKWMWP&purpose=Purchase"e=ZQ-
YBNQDWJN

This 5/1 ARM exposes the borrower to unlimited increases in interest rates as
LIBOR increases.

True

5/8
 False

6.66667 points

QUESTION 11

1.

Base your answer on the following information:

https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#
filters=10248&request=ZR-BPLKWMWP&purpose=Purchase"e=ZQ-
YBNQDWJN

Borrower fees paid at the origination of this mortgage are less than $500
because the interest rate risk is shifted from the lender to the borrower.

True

False

6.66667 points

QUESTION 12

1.

Base your answer on the following information:

https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#
filters=10248&request=ZR-BPLKWMWP&purpose=Purchase"e=ZQ-
YBNQDWJN

The mortgage rate is on this 5/1 ARM is 225 basis points higher than the index
until it reaches its lifetime cap.

True

False

6.66667 points

QUESTION 13

6/8
 1.

Base your answer on the following information:

https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#
filters=10248&request=ZR-BPLKWMWP&purpose=Purchase"e=ZQ-
YBNQDWJN

The rate on this 5/1 adjustable rate mortgage has no fixed period. The rate can
adjust from the day you borrow the funds.

True

False

6.66667 points

QUESTION 14

1.

Base your answer on the following information:

https://www.zillow.com/mortgage-rates/?auto=true&value=1599000&zip=11210#
filters=10248&request=ZR-BPLKWMWP&purpose=Purchase"e=ZQ-
YBNQDWJN

The APR is greater than the annual mortgage rate because the APR accounts
for fees that must be paid. The fees paid will lower the PV (loan balance) and
thus boosts the actual rate the borrower is paying.

True

False

6.66667 points

QUESTION 15

1.

The development of interesting accessible public space that a community values

will increase the value of private property in the neighborhood.

7/8
 True

False

Brooklyn BUSN 17536 - If you buy a home all of your mortgage

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