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Use the following information to answer all of the following:
Karon owns a home worth $245,000. Howard Mortgage is offering a reverse mortgage with a 15-year term, a maximum loan balance equal to 60 percent of the home’s current value and a 7.25 percent interest rate.
A. If Karon takes out no money at origination, what is the monthly payment that he can receive with this mortgage?
a. $1,341.91
b. $453.78
c. $756.31
d. $2,236.51
e. None of the above.
B. Suppose Karon decides to take out $40,000 at origination. What will Karon’s monthly annuity be in this case?
a. $88.64
b. $391.16
c. $1,121.45
d. $818.93
C. Suppose instead that Karon wants to as large a lump-sum payment as possible. What is the largest amount of money Karon can receive at origination?
a. $82,849.87
b. $724,503.23
c. $49,709.92
d. $434,701.94
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