A reverse annuity mortgage is made with balance

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A reverse annuity mortgage is made with a balance not to exceed $300,000 on a property now valued at $700,000. The loan calls for monthly payments to be made to the borrower for 120 months at an interest rate of 11% MEY.

[1] What will the monthly payments be?

[2] What will the RAM balance be at the end of year 3?

[3] Assume that the borrower must have monthly draws of $2,000 for the first 50 months of the loan. The remaining draws from months 51 to 120 must be determined so that the $300,000 maximum is not exceeded in month 120. What will the draws by the borrower be during months 51 to 120?

[4] Suppose property experiences a 1% appreciation (MEY, starting today), and the borrower has a balance of $300,000 at year 10 (by receiving payments computed in a). No payments are made thereafter. How many years from loan closing will the loan balance begin to exceed the house value?

Reference no: EM13870683

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