Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
PAMs are so structured that the repayments resemble traditional mortgages from the lenders' point of view and resemble GPMs from the borrowers' point of view. This is achieved as follows:
Under PAMs some portion of the down payment as required under a traditional mortgage is deposited in a savings account.
The borrower then pays installments which are lower than those under traditional mortgage. These installments are increased at a specified percentage for a definite number of years and thereafter the borrower pays equal installments. Thus, for the borrower the payments resemble a GPM.
The lender is, however, paid equated monthly installments by drawing the difference between the installment paid by the borrower and the installment due from the pledged savings account.
The difference between payments under traditional mortgage and under a PAM is explained below with the help of an illustration.
Assume that a loan is borrowed for an amount of $110,000 for 30 years at an interest of 10% per annum. The down payment required is $17,535.
Under a traditional mortgage, the borrower would pay the down payment of $17,535 and make an equated monthly payment of $811.46.
Under a PAM mortgage, the structure would be as follows:
The borrower would make a down payment of $10,000 and deposit $7,535 in a pledged savings payment. Let us assume that this deposit earns an interest of 5¼%.
The borrower would make graduated payments for 6 years increasing at a rate of 6% every year, and thereafter up to the 30th year the payments would be equated.
The lender would receive an equated monthly payment of $877.58 throughout the term of the mortgage.
The gap between the amount payable to the lender and payment made by the borrower will be made up through withdrawals from the pledged savings account.
The amount of payment by the borrower and the amount drawn from the savings account for each year are given below:
Table 4
Year(s)
Graduated Monthly Payment made by Borrower ($)
Amount Drawn from Savings Account ($)
Payment made to Lender ($)
1
655.78
221.80
877.58
2
695.12
182.46
3
736.84
140.74
4
781.04
96.54
5
827.90
49.68
6-30
-
PAMs are used by borrowers who have sufficient cash on hand, but face an income or cash flow shortage for the first few years. With the cash on hand the pledged savings is opened, as it subsidizes the monthly payment and lowers the cash outgo.
QUESTION 1 Assuming perfect capital mobility under Mundell-Fleming Model, clearly explain the effectiveness of- i) an expansionary fiscal policy under a fixed exchange rate
Contents of the Offering Memorandum Executive Summary: It constitutes one of the most important parts of the document and is the key selling chapter of the document. It should
Part B This case is intended to be an introduction to the various methods used in capital budgeting and looks at some of the decisions that may have to be made when evaluating pro
The Project to be Addressed by the Paper: You have just graduated from CCI's MBA program and have secured a position as a fund manager for a well known investment banking house
TYPES OF DIVIDEND POLICY 1. Regular dividend policy: Payment of dividend at standard rate is known as regular dividend policy. 2. Stable dividend policy: Payment of fix
Cost-Volume-Profit Analysis The Cost-Volume-Profit (CVP) analysis provides answers to vital questions such as: At what sales volume would the firm break-even? How sensitive is
types of working managment policies
The annual report and accounts for Astra Zeneca plc and Epistem Holdings plc and other relevant financial information are available in the ‘TMA 02 Resources folder' in the Assessme
What are the risks associated with using a large amount of short-term financing for working capital? Using a large amount of short-term financing in general allows funds to be
What is meant by deadweight loss? Why does a price ceiling usually result in a deadweight loss? Deadweight loss considers to the benefits lost to either consumers or producers
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd