BUS 283W Lecture Notes - Lecture 1: Balloon Payment Mortgage, Fixed-Rate Mortgage, Adjustable-Rate Mortgage
20 Jun 2019
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Document Summary
Simplest form of loan is a balloon loan. A balloon loan is a loan where the principal and interest are paid at the end of the loan term. Amortized loans are loans where interest and principal are repaid with a constant series of payments. The end-of-term payment is referred to as the balloon payment. Total of all payments principal: this is the amount of interest the borrower pays over the life of the loan. Interest from reinvestment total interest (lender earned) interest in payments (interest from borrower: x y = z, then take that difference and divide by total interest from reinvestment (z/x) Questions/summaries reinvest intermediate payments at the loan rate. Thus lenders only earn i% on amortized loans if they can reinvest at i%. Reinvestment interest difference between the future value of the x payments and the sum of current payments: this current sum of payments is the amount you"d earn with no interest accruing.
