Refinance Mortgage

Project-Spreadsheet assignment

1. You are currently in the 7th year of a 25-year fixed rate, fully amortized mortgage with monthly payments. You originally borrowed $150,000 with a 9.50% annual interest rate. Interest rates are expected to be lower, so you are considering the feasibility of refinancing the loan. To refinance, closing costs are expected to be 3.25% of the new loan amount. You will also have to pay 1 point. Assume no prepayment penalties both with the original and new loans.

A) Using a spreadsheet, calculate the new loan payments for every eighth of a percent from a
revised interest rate of 7.5% to 8.5%. Assume you will refinance at the end of the 7th year
of the mortgage with points and closing costs included in the new loan and you do not wish
to extend the length of the mortgage beyond its current length (i.e. the maturity of the new
loan is 18 years from now).

B) How low must interest rates go in order for you to breakeven?

C) Draw a graph to plot the new interest rate versus the new mortgage payment and show the breakeven point.

2. In this problem, you are being asked to calculate the effective borrowing cost (rate) of an adjustable rate mortgage assuming you live in the house till the loan matures under the following eight (8) scenarios:

1. Index rises 1/4% every year
2. Index rises 1/2% every year
3. Index rises 3/4% every year
4. Index rises 1% every year
5. Index rises 2% every year
6. Index falls 1/4% every year
7. Index falls 1/2% every year
8. No change in index

A description of the 1-year ARM with monthly payments is as follows:
Amount: $100,000
Maturity: 15 years
Points: 2
Closing Costs: 4%
Initial Contract Rate (teaser): 3.75%
Margin: 125 bps (1basis point = 0.01%)
Current Index Yield: 4%
Caps and Floors: Annually: 1%, Lifetime: 3%

do your own homework or hire an accountant

The loan in question is a no money down 5.8% refinance where the broker is getting $14k in broker fees FROM the lender. Is this savings that should have been passed down to the consumer or is it a typical percentage paid to the mortgage broker?

A mortgage broker works on commission. This is paid by the lender. There is no part of this fee that belongs to the borrower.

A typical commission is 1% of the face amount of the loan, but it could be anything that the broker and the lender agree on.

It’s just like buying a car. The price of the car is what the buyer agrees to pay and what the salesman gets in compensation is between him and the dealer.

I’m a loan officer and lately I’ve heard that Washington Mutual will do your home loan with no closing cost and the will use your old appraisal. Is this true or are there closing cost when it’s all said and done?

they will use the old appraisal if it’s a rate/term refi or if DU waives it…..streamline Refi

anyone can do NO CLOSING COSTS…if the going rate is 6.125% with closing costs….they will charge 6.75% no closing costs. they raise the rates by at least 0.5%

nothing in life is for free