UCLA ECON 103 - Chap006 (1) (16 pages)

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Chap006 (1)



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Chap006 (1)

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Pages:
16
School:
University of California, Los Angeles
Course:
Econ 103 - Introduction to Econometrics

Unformatted text preview:

Chapter 06 Mortgages Additional Concepts Analysis and Applications Solutions to Questions Chapter 6 Mortgages Additional Concepts Analysis and Applications Question 6 1 What are the primary considerations that should be made when refinancing The borrower must determine whether to present value of the savings in monthly payments is greater than the refinancing costs points origination fees costs of 1 appraisal 2 credit reports 3 survey 4 title insurance 5 closing fees etc Question 6 2 What factors must be considered when deciding whether to refinance a loan after interest rates have declined The payment savings resulting from the lower interest rate must be weighed against the costs associated with refinancing such as points on the new loan or prepayment penalties on the loan being refinanced Question 6 3 Why might the market value of a loan differ from its outstanding balance The balance of a loan depends on the original contract rate whereas the market value of the loan depends on the current market interest rate Question 6 4 Why might a borrower be willing to pay a higher price for a home with an assumable loan An assumable loan allows the borrower to save interest costs if the interest rate is lower than the current market interest rate The investor may be willing to pay a higher price for the home if the additional price paid is less than the present value of the expected interest savings from the assumable loan Question 6 5 What is a buydown loan What parties are usually involved in this kind of loan A buydown loan is a loan that has lower payments than a loan that would be made at the current interest rate The payments are usually lowered for the first one or two years of the loan term The payments are bought down by giving the lender funds in advance that equal the present value of the amount by which the payments have been reduced Question 6 6 Why might a wraparound lender provide a wraparound loan at a lower rate than a new first mortgage Although the



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