You are a mortgage banker at BB&T Bank in Miami. One customer Peter wants to b

You are a mortgage banker at BB&T Bank in Miami. One customer Peter wants to borrow money from your bank to finance his new home. He
just finds a new job and plans to buy the house at a price of $300000. He wants to borrow a 80% loan
to purchase the home. You tell Peter that a constant payment 30 year amortization period fully amortizing loan (FRM) is available. The interest rate for the loan is 4.5% which is the same as the market interest rate. Moreover you will charge a loan origination fee of 3% for the loan.

(a) What is the monthly payment for the loan?

(b) What is the effective interest rate assuming the mortgage is paid off after 30 years?

(c) If Peter plans to repay the loan after three years what is the effective interest
rate?

(d) If Peter wants to borrow a 90% loan the loan rate will be 5.5%. Everything else being equal (i.e. he prepays the loan after 3 years
with the 3% loan fee) would you recommend him to borrow the 90% loan? [hint: calculate incremental cost of borrowing]

(e) Suppose Peter can get a loan with a below-market interest rate from the homebuilder. This fully amortizing FRM loan will have a 80% LTV
4% interest rate 30 years amortization period and with no loan fees. At what price should the homebuilder sell the home to Peter in order to earn the market
rate of interest (4.5%) on the loan? Assume that Peter would have the loan for the entire term of 30 years and the home would normally sell for $300000
without any special financing.

Please include all keystrokes and calculator input.