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 year mortgage at 7%.  However, the up-front fees, which will be paid in cash, are $2,000.  

1. What is the monthly payment on the initial loan?  
2. What is the loan balance at the time of refinancing?  
3. 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

1. 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

1. 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)

Answer 1

PV=$100,000, rate per month (r)=8%/12=0.006667, number of months(n)=30*12 = 360months
Part a)
Monthly payment (P) = PV*r*[(1+r)^n]/{[(1+r)^n]-1} = 100,000*0.006667*[(1+0.006667)^360]/{[(1+0.006667)^360]-1} = 666.67*(1.006667^360)/[(1.006667^360)-1] = 666.67*10.93572966/9.93572966 = $733.76

Part b)

Number of payments (n) = 15*12 = 180months
Remaining balance at the end of 15th year = [100000*(1+0.006667)^180] - 733.76*{[(1+0.006667)^180]-1}/0.006667 = [100000*(1.006667^180)]-{733.76*[(1.006667^180)-1]/0.006667} = [100000*3.306921477]-[110058.4971*2.306921477] = 330,692.15 - 253,896.31 = $76,795.84

answered by: anonymous