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Question 4 In recent years, several types of non-traditional amortization schemes have become popular. The most popular is the interest-only product. With this type of loan, only interest is paid for a predetermined period (lockout period). Following the lockout period, the loan is recast such that the monthly mortgage payments will be sufficient to fully amortize the original amount of the loan over the remaining term of the loan. a) Consider the loan in Question 1 with a lockout period of two years and an initial rate of 2.3%. What is the monthly payment for the first 60 months? b) What is the monthly payment from the 25th month on? Is it higher or lower? c) How does the monthly payment schedule compare to the one in Question 1? d) What kind of borrower would be interested in such a loan? a Question 1 Consider the following fully amortizing fixed-rate mortgage (FRM). Maturity = 25 years Amount Borrowed=$1,000,000. Annual Mortgage Rate=2.3% a) Formula for calculating the monthly mortgage payment? b) Construct an amortization schedule for the first 10 months c) What will the mortgage balance be at the end of the 360th month, assuming no prepayments? d) Without constructing an amortization schedule, what is the mortgage balance at the end of month 270, assuming no prepayments? e) Without constructing an amortization schedule, what is the scheduled principal payment at the end of month 270, assuming no prepayments? Question 4 In recent years, several types of non-traditional amortization schemes have become popular. The most popular is the interest-only product. With this type of loan, only interest is paid for a predetermined period (lockout period). Following the lockout period, the loan is recast such that the monthly mortgage payments will be sufficient to fully amortize the original amount of the loan over the remaining term of the loan. a) Consider the loan in Question 1 with a lockout period of two years and an initial rate of 2.3%. What is the monthly payment for the first 60 months? b) What is the monthly payment from the 25th month on? Is it higher or lower? c) How does the monthly payment schedule compare to the one in Question 1? d) What kind of borrower would be interested in such a loan? Question 4 In recent years, several types of non-traditional amortization schemes have become popular. The most popular is the interest-only product. With this type of loan, only interest is paid for a predetermined period (lockout period). Following the lockout period, the loan is recast such that the monthly mortgage payments will be sufficient to fully amortize the original amount of the loan over the remaining term of the loan. a) Consider the loan in Question 1 with a lockout period of two years and an initial rate of 2.3%. What is the monthly payment for the first 60 months? b) What is the monthly payment from the 25th month on? Is it higher or lower? c) How does the monthly payment schedule compare to the one in Question 1? d) What kind of borrower would be interested in such a loan? a Question 1 Consider the following fully amortizing fixed-rate mortgage (FRM). Maturity = 25 years Amount Borrowed=$1,000,000. Annual Mortgage Rate=2.3% a) Formula for calculating the monthly mortgage payment? b) Construct an amortization schedule for the first 10 months c) What will the mortgage balance be at the end of the 360th month, assuming no prepayments? d) Without constructing an amortization schedule, what is the mortgage balance at the end of month 270, assuming no prepayments? e) Without constructing an amortization schedule, what is the scheduled principal payment at the end of month 270, assuming no prepayments? Question 4 In recent years, several types of non-traditional amortization schemes have become popular. The most popular is the interest-only product. With this type of loan, only interest is paid for a predetermined period (lockout period). Following the lockout period, the loan is recast such that the monthly mortgage payments will be sufficient to fully amortize the original amount of the loan over the remaining term of the loan. a) Consider the loan in Question 1 with a lockout period of two years and an initial rate of 2.3%. What is the monthly payment for the first 60 months? b) What is the monthly payment from the 25th month on? Is it higher or lower? c) How does the monthly payment schedule compare to the one in Question 1? d) What kind of borrower would be interested in such a loan

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