FIN 3334- Lender risk mitigation notes (lesson 4)

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Unformatted text preview: a down payment. A lender has offered you a \$360,000 30‐year FRM at 5.4% with \$3,600 in originations fees if you are willing to pay a monthly PMI premium of \$200 per month until your LTV is less than 80%. Answer the following questions based on your predicament: a. How many months will you have to make payments to the insurance company? Calculate Monthly Payments Solve for N when FV =\$320,000 N = 360 N = ? = 82.5 83 payments I = 5.4 / 12 I = 5.4 / 12 PV = 360,000 PV = 360,000 PMT = ? = 2021.51 PMT = ‐2021.51 FV = 0 FV = ‐320000 Must make at 83 payments until LTV < 80% b. What is APR of this Loan? CF0 = 356400 C1 = ‐2021.51‐200 = ‐2221.51 F1 = 83 C2=‐2021.51 F2 = 277 I = 0.48725 x 12 = 5.85% c. What is EBC if Prepay after 6 years (ie, 72 payments)? CF0 = 356400 C1 = ‐2021.51‐200 = ‐2221.51 F1 = 71 C2=‐2221.51‐325,948 F2 = 1 I = 0.52537 x 12 = 6.30% d. What is Incremental borrowing cost of \$40k if lender willing to provide a \$320,000 FRM loan at 5.4% with \$3,200 in origination fees without requiring PMI? (assume don’t prepay) So...
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