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mortgages.pptx - MORTGAGES MIDTERM REVIEW POSSIBILITIES...

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M I D T E R M R E V I E W MORTGAGES
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POSSIBILITIES Regular Mortgage Mortgage with Points Mortgage with Ballon Mortgage with Ballon and Points
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REGULAR MORTGAGE Number of period must be calculated which is usually the number of years multiplied by the compounding frequency. For most mortgages. For most mortgages we multiple years by 12 months. The stated interest rate is usually an APR, so in order to use Excel functions, the APR must be divided by the compounding frequency which in this case is 12 months. The amount borrowed gives us the present value. The loan is usually amortized so the future value is zero.
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MORTGAGE WITH BALLOON 1. Calculate the payments using the regular, fully amortized mortgage. 2. Change the number of periods so it corresponds to when the balloon payment must occur. 3. The balloon is calculated as the future value with the new number of periods.
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MORTGAGE WITH POINTS 1. Calculate the payments using the regular, fully amortized mortgage 2. Change the present value so that it reflects the amount received from the lender rather than the amount that is owed 3. Calculate the new interest rate 4. Convert the new rate into and APR and EAR
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