# Mortgage Document

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User Generated
Subject
Finance
Type
Homework
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The report presents a loan summary of nine new loans that were approved during the past month
by First National Bank. Reviewing the report clearly explains the various aspects of mortgage.
A loan is basically the selling price of the house less the down payment the borrower is willing to
pay. There is a minimum down payment requirement depending on the term for which the loan is
sought.
Interest rates also vary according to the loan term.
The loan terms is the number of years a borrower pays installments on the loan in order to repay
the full amount with interest. The loan terms that First National bank offers are 15, 20 and 30
years. While the most common term is 30 years. Banks offer shorter duration terms as well to
suit the borrower’s need. A short duration loan reduces the overall interest cost but the
installment amount is higher compared to a longer duration loan. This is evident form the
worksheet as well. The bank offers a 30-year mortgage at 6.25% interest and reduces this interest
rate by 25 points for a shorter duration. For this purpose, we can observe the two loans in the
names of customers Allen and Morgan. Despite the fact that Allen is borrowing a larger amount
of \$199k, because he chose to pay over a 30-year duration, his monthly payments is \$1.2k. On
the other hand, Morgan has opted to borrow \$164k and pay over a 15-year term which leads to a
monthly payment of \$1.4k. Even though Morgan pays a lower interest rate of 5.75% per annum
compared to 6.25% paid by Allen, his monthly payment is higher. Hence, a borrower has to
weigh the benefits of saving interest costs and impact of high monthly payments on financial
situation while deciding the term of loan he/she would opt for.
According to the standard terms, the report utilizes the VLOOUP function which returns the
appropriate interest rate applicable to a particular loan.
The decision of loan term also changes the down payment required. The bank raises the
minimum down payment by 5% for each higher level of loan term. This column also utilises the
VLOOKUP function to calculate the amount of down payment by multiplying the percentage of
down payment required with the selling price of the house.
The resulting figure of the price of the house minus the downpayment gives the amount actually
financed by the bank. This amount to be financed is purely the sum lent by bank to the borrower.
This is not the only amount the borrower is expected to pay. The borrower will pay interest on
the amount borrowed as well.
The PMT function helps to ascertain the monthly amount repaid by customer including interest.
It uses the interest rates, number of installments and present value which is the amount actually
borrowed by customer as inputs. To arrive at monthly payments, the interest rate is divided by
12. The number of installments is accordingly calculated by multiplying the years for which the
loan is offered by 12 months each. The present value is the amount to be financed by the bank.
The function also offers certain optional arguments which can be entered depending on the
different modifications of a particular loan. In this case, as the borrower is expected to pay in full
by the end of the loan term, the FV is taken as nil. The borrower is expected to be paid at the
beginning of the period and so the number 1 is mentioned under ‘type’ category.

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The report presents a loan summary of nine new loans that were approved during the past month by First National Bank. Reviewing the report clearly explains the various aspects of mortgage. A loan is basically the selling price of the house less the down payment the borrower is willing to pay. There is a minimum down payment requirement depending on the term for which the loan is sought. Interest rates also vary according to the loan term. The loan terms is the number of years a borrower pays installments on the loan in order to repay the full amount with interest. The loan terms that First Nat ...
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### Review

Anonymous
Very useful material for studying!

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