An appraiser is looking for comparable sales and finds a property that recently sold for $216,500. She finds that the buyer was able to assume the seller’s fully amortizing mortgage, which had monthly payments based on a 7 percent interest. The balance of the loan at the time of sale was $145,500 with a remaining term of 15 years (monthly payments). The appraiser determines that if a $145,500 loan was obtained on the same property, monthly payments at the market rate for a 15-year fully amortizing loan would have been 8 percent with no points. 1. Assume that the buyer is expected to benefit from the interest savings on the assumable loan for the entire loan term. What is the cash equivalent value of the property? 2. What is the cash equivalent value of the property if you assumed that the buyer is only expected to benefit from interest savings for five years because he would probably sell or refinance after five years?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

An appraiser is looking for comparable sales and finds a property that recently sold for $216,500. She finds that the buyer was able to assume the seller’s fully amortizing mortgage, which had monthly payments based on a 7 percent interest. The balance of the loan at the time of sale was $145,500 with a remaining term of 15 years (monthly payments). The appraiser determines that if a $145,500 loan was obtained on the same property, monthly payments at the market rate for a 15-year fully amortizing loan would have been 8 percent with no points.

1. Assume that the buyer is expected to benefit from the interest savings on the assumable loan for the entire loan term. What is the cash equivalent value of the property?

2. What is the cash equivalent value of the property if you assumed that the buyer is only expected to benefit from interest savings for five years because he would probably sell or refinance after five years?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 7 images

Blurred answer
Knowledge Booster
Mortgage Amortization
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education