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Incre mental Financing and Junior Mortgage
Practice Proble ms

1.   You can borrow 95% of the purchase price at a rate of 6.75%. You can borrow 80%
of the purchase price at 6.25%. What is the incremental cost of borrowing? Assume
monthly payments for 30 years.

2. Mr. Davis is assuming a mortgage of \$95,000 that has a contract rate of 5.75% and 15
years until maturity. In addition, he is taking out a second mortgage for \$30,000 at
9%. The second mortgage also has a 15 year term. What is the combined borrowing
cost? Payments occur monthly.

3. To purchase our home we have decided to choose an 80-10-10 mortgage with
monthly payments. The 80% loan is for 30 years and has a contract rate of 6.75%.
The 10% loan is for 15 years and has a contract rate of 9%. What is the lenders’
combined yield? The purchase price is \$150,000

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