Question
1.A property can be purchased for $200,000 subject to an assumable loan at 8.25% (below market reates) with 15 years remaining and a balance of
1.A property can be purchased for $200,000 subject to an assumable loan at 8.25% (below market reates) with 15 years remaining and a balance of only 120,000 (The original loan was for 165,000). You want to assume the mortgage, but need to finance $150,000 total so you must take out a second mortgage for $30,000 for 15 years at 8.75%. Alternatively, there is a comaprable property for $190,000 for which you can obtain a loan of $150,000 for 15 years at the market rate of 11.00%. What rate of "return" would a borrower earn by assuming the loan and taking out a second mortgage instead of borrowing at the market rate?
2. A property can be purchased for $150,000 subject to an assumable loan at 8.25% (below market rates) with 25 years remaining and a balance of $135,000. A comparable property without special financing costs $145,000 and a loan for $135,000 can be obtained at 8.5% for 25 years. What rate of "return" would a borrower earn by assuming the loan instead of borrowing at the market rate?
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