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Original amount of the loan

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A Bank makes a 360-month mortgage loan to a traditional (Prime) Borrower. The cost of the house was $250,000 and the original amount of the loan was $200,000. The Bank charged the Borrower an interest rate of 4.5%, which was a fair rate at the time. The Bank wants to test the likelihood that the loan will become "underwater" after two years. By how much would the house have to change in value each year for the Bank to be worried about this loan going under water?

a. -1.7%

b. -12.0%

c. -22.6%

d. -5.4%

e. -8.9%

Reference no: EM131082553

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