- Budgeting
- Cash Management
- Consumer and Mortgage Loans
- Introduction
- Understand How Consumer Loans Can Keep You from Achieving Your Goals
- Explain the Characteristics and Costs of Consumer Loans
- Explain the Characteristics and Costs of Mortgage Loans
- Understand How to Select the Least Expensive Sources for Consumer Loans and How to Reduce the Costs of Borrowing
- Summary
- Assignments
- Debt and Debt Reduction
- Time Value of Money 1: Present and Future Value
- Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
- Insurance 1: Basics
- Insurance 2: Life Insurance
- Insurance 3: Health, Long-term Care, and Disability Insurance
- Insurance 4: Auto, Homeowners, and Liability Insurance
- The Home Decision
- The Auto Decision
- Family 1: Money and Marriage
- Family 2: Teaching Children Financial Responsibility
- Family 3: Financing Children’s Education and Missions
- Investments A: Key Lessons of Investing
- Investments B: Key Lessons of Investing
Case Study #7
Data
Jon took out a $300,000, 30 year Option ARM mortgage for purchasing his home, which had a 7% mortgage. Each month he could make a minimum payment of $1,317 (which didn’t even cover interest), an interest only payment of $1,750, a payment of $1,996 that included both principle and interest, or an additional amount. The loan had a negative amortization maximum of 125% of the value of the loan. Jon was not very financially savvy, and for the first 10 years made the minimum payment only. As a result, at the end of year 10, he was notified that he had hit the negative amortization maximum and that his loan had reset.
Calculations
A. What is Jon’s new monthly payment beginning in year 11 after he hit the negative amortization limit?
B. How much did Jon’s monthly payment rise over the minimum payment he was paying previously?
