Question

14. A house is sold with an assumable $156,000 below-market loan at 8.5% for a remaining term of 15 years. Current rates are 9.75% for 15 year mortgages. If the house sold for $240,000, what is the cash-equivalent value of the house.

please do not show on excel. rather show me the step on calculator

Answer 1

First, we have to calculate the monthly payment to be made for 15 years.

Number of periods n=15 years=180 months

Rate of the loan =8.5%

Loan Amount A = $156,000

For monthly payment, you can use a calculator and input the numbers in the formula.

Hence, Monthly payment = $1536.19

Now, we must calculate the Present Value (PV) of the loan:

For this use a calculator inputting n=180, PMT=1536.19, I/Y=9.75% ==> PV=$145,165.18

Now, we must adjust the current loan amount to the market value ( $156,000-$145,165.18) = $10834.82

The market loss must be deducted from the house price to arrive at the cash-equivalent of the house ie. ($240,000-$10834.82) = $229,165.18