Question
1. A borrower has secured a 30 year, $100,000 loan at 8%. Fifteen years later, the borrower has the opportunity to refinance with a fifteen
1. A borrower has secured a 30 year, $100,000 loan at 8%. Fifteen years later, the borrower has the opportunity to refinance with a fifteen year mortgage at 7%. However, the up-front fees, which will be paid in cash, are $2,000.
- What is the monthly payment on the initial loan?
- What is the loan balance at the time of refinancing?
- What is the return on investment if the borrower expects to remain in the home for the next fifteen years after refinancing?
2. Consider the following:
- You need a $250,000 financing package.
- $125,000 at 9%, 30 Years
- $75,000 at 8%, 20 Years
- $50,000 at 7% 10 Years
- What is the IRR (that is, the effective interest rate) on the $250,000 borrowed? Assume monthly payments.
3. Consider the following below market financing problem for two identical homes (assume monthly payments):
A | B | |
Price | $140,000 | $120,000 |
Loan Balance | $90,000 (assumable) | $90,000 (new loan) |
Down payment | $50,000 | $30,000 |
I | 7% | 8% |
Term | 20 Years | 20 Years |
- What is the rate of return on the $20,000 investment in the first alternative?
Does anyone know how to solve these three problems by using (PV, FV, PMT, N and I/Y)
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