What is the monthly payment for a Constant Payment Mortgage (CPM) loan?

The purpose of this assignment is to demonstrate that the student
understands how to calculate both a fixed rate and an adjustable rate
mortgage under a variety of terms and variables.
Submit to your instructor your answers to the questions in Part One
and Part Two. Since this assignment is based on calculations, you are
required to show all your work in detail for each answer by listing the
components for each calculation and explaining the calculation taking
place to reach the answer submitted. This may be done on a Word document
or an Excel spreadsheet. Make sure that all work is shown in your
submission for full credit.
Part One
Please answer the following questions for a fixed-rate mortgage as a
fully amortizing mortgage loan made for $175,000 at 4.5% interest for 30
years.
What is the monthly payment for a Constant Payment Mortgage (CPM) loan?
What will the total of payments be for the entire 30 year period? Of this total, how much will be interest?
Assume the loan is repaid in the end of 8 years. What will be the
outstanding loan balance paid at that time? How much total interest will
have been collected by then?
Assume the borrower chooses to reduce the loan balance by $5000 at
the end of year 8. What will be the new loan maturity date assuming that
loan payments are not reduced?
Part Two
Please answer the following questions for an adjustable-rate mortgage
under the following conditions: an Adjustable Rate Mortgage (ARM) for
$140,000 is made at the time when the expected start rate is 6%. The
loan will be made with the teaser rate of 3% for the first year, after
which, the rate will be reset. The loan is fully amortizing, has a
maturity of 25 years, and will be made monthly.
What will the monthly payments (principle and interest) be during the first year?
Assuming that the reset rate is 7% at the beginning of Year (BOY) 2,
what will the monthly payments be (principle and interest) beginning in
Year 2 through Year 25?
By what percentage will monthly payments increase from Year 1 to Year 2?
What if the reset date is three years after loan origination, and
the reset rate is 8%. What will the monthly payments be (principle and
interest) beginning in year 4 through year 25?
Since this assignment is based on calculations, you are required to
show all your work in detail for each answer by listing the components
for each calculation and explaining the calculation taking place to
reach the answer submitted. This may be done on a Word document or an
Excel spreadsheet. Make sure that all work is shown in your submission
for full credit.

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