Question
Ann buys a property that costs $1,000,000. She finances the purchase with a 70% LTV mortgage. She gets a 20 year interest only fixed rate
-
Ann buys a property that costs $1,000,000.
She finances the purchase with a 70% LTV mortgage.
She gets a 20 year interest only fixed rate mortgage at an annual interest rate of 5%, with annual compounding and annual payments.
Ann must pay 2 points upfront in mortgage closing costs (as a % of the loan amount).
The loan has a 5/4/3/2/1 prepayment penalty structure (she must pay a 5% penalty if she prepays at any time in the first year, 4% penalty in the second year, etc).
Suppose Ann will sell the property during year 3, after she makes the 3rd years mortgage payment and pays off the balance when she sells.
What is Anns annualized IRR for the loan ?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started