An investor has owned a property for 15 years, the value of which is now to $200,000. The balance on the original mortgage is$100,000 and the monthly payments are $1,100 with 15 years remaining. The investor would like to obtain $50,000 in additionalfinancing. A new first mortgage for $150,000 can be obtained at a 12.5 percent rate. A new second mortgage for $50,000 can beobtained at a 14 percent rate with a 15-year term. Alternatively, a wraparound loan for $150,000 can be obtained at a 12 percent rateand a 15-year term. All loans are fully amortizing.Required:a. What is the incremental return on the wraparound loan?b. What is the effective cost of the combination of the existing mortgage and the new second mortgage?c. Which alternative is better for the borrower?Complete this question by entering your answers in the tabs below.Required A Required B Required CWhat is the incremental return on the wraparound loan?Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.Incremental return%

Question aPrincipal: $150,000Interest rate: 12% per year, or 1% per monthTerm: 15 years, or 180…

Answered: An investor has owned a property for 15…

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

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An investor has owned a property for 15 years, the value of which is now to $200,000. The balance on the original mortgage is $100,000 and the monthly payments are $1,100 with 15 years remaining. He would like to obtain $50,000 in additional financing. A new first mortgage for $150,000 can be obtained at a 12.5 percent rate and a second mortgage for $50,000 at a 14 percent rate with a 15-year term. Alternatively, a wraparound loan for $150,000 can be obtained at a 12 percent rate and a 15-year term. All loans are fully amortizing. a. What is the percentage of incremental return on the wraparound loan? b. What is the percentage of effective cost of the combination of the existing mortgage and the new second mortgage? c. Which alternative is better for the borrower?
An investor has $60,000 to invest in a $280,000 property. He can obtain either a $220,000 loan at 9.5 percent for 20 years or a $180,000 loan at 9 percent for 20 years and a second mortgage for $40,000 at 13 percent for 20 years. All loans require monthly payments and are fully amortizing.a. Which alternative should the borrower choose, assuming he will own the property for the full loan term?b. Would your answer change if the borrower plans to own the property for only five years?c. Would your answers to (a) and (b) change if the second mortgage had a 10-year term?
You purchase a home and have a $200,000 mortgage for 20 years at 5%. Utilize an amortization schedule. What are the periodic annual payment required for the mortgage? What are the interest payment for the first year? What is the first year principal repayment What is the balance owed at the end of the first year? What are the interest paid on the principal repayment for the second year ? What is the balance owed at the end of the second year ? Why did the interest paid on the principal repayment change in the second year?
An individual wishes to purchase a house that is selling for $200,000. The person has $50,000 they can use as a down-payment towards the purchase of the house. The bank is offering a 5-year Term with an interest rate of 10% compounded monthly. The mortgage amount will be amortized over a period of 10-years. What are the individual's monthly payments? How much of the original amount of the mortgage is still outstanding at the end of the 5-year Term of the mortgage disçussed in Part 1 of this problem?
You have a choice between the following two identical properties: Property A is priced at $162,000 with 80 percent financing at a 10.5 percent interest rate for 20 years. Property B is priced at $172,000 with an assumable mortgage of $100,000 at 9 percent interest with 20 years remaining. Monthly payments are $899.73. A second mortgage for $28,000 can be obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully amortizing. Required: a. With no preference other than financing, which property would you choose? b. Which property would you choose if the seller of Property B provided a second mortgage for $28,000 at the same 9 percent rate as the assumable loan? c. Which property would you choose if the seller of Property B provided a second mortgage for $38,000 at the same 9 percent rate as the assumable loan so that no additional down payment would be required by the buyer if the loan were assumed? Complete this question by entering your answers in the…
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You have a choice between the following two identical properties: Property A is priced at $150,000 with 80 percent financing at a 10.5 percent interest rate for 20 years. Property B is priced at $160,000 with an assumable mortgage of $100,000 at 9 percent interest with 20 years remaining. Monthly payments are $899.73. A second mortgage for $20,000 can be obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully amortizing. a. With no preference other than financing, which property would you choose? b. How would your answer change if the seller of Property B provided a second mortgage for $20,000 at the same 9 percent rate as the assumable loan? c. How would your answer change if the seller of Property B provided a second mortgage for $30,000 at the same 9 percent rate as the assumable loan so that no additional down payment would be required by the buyer if the loan were assumed?
A home purchaser need to borrow $500,000 to finance their new home. The buyer believes they will live in the house for approximately 4 years. The buyer is offered two mortgage options. The first loan is at a rate of 3% with the payment of $103 in points. The second loan is at a rate of 2.75% with the payment of $6095 in points. Both loans are 30 year fully amortizing loans with monthly payments. What is the payment on the second loan? Group of answer choices $2041.21 $1897.32 $1185.36 $2753.78
You purchase a house and obtain a 30-year loan of $198,000 at an annual interest rate of 8.30%. (Round your answers to the nearest cent.) (a) What is the mortgage payment?$ (b) What is the total of the payments over the life of the loan?$ (c) Find the amount of interest paid on the mortgage loan over the 30 years.$
You are considering an option to purchase or rent a single residential property. You can rent it for $2,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes. Alternatively, you can purchase this property for $200,000 and finance it with an 80 percent mortgage loan at 4 percent fixed-rate interest that will fully amortize over a 30-year period. The loan requires monthly payments. The loan can be prepaid at any time with no penalty. You have done research in the market area and found that (1) properties have historically appreciated at an annual rate of 2 percent per year, and rents on similar properties have also increased at 2 percent annually; (2) maintenance and insurance are currently $1,500.00 each per year and they have been increasing at a rate of 3 percent per year; (3) you are in a 24 percent marginal tax rate and plan to occupy the property as your principal residence for at least four years; (4) the capital gains exclusion…
You plan to purchase a $130,000 house using a 15-year mortgage obtained from your local credit union. The mortgage rate offered to you is 5.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgage. b. Construct the amortization schedule for the first six payments.
What is the value accumulated at the end of 30 years if $300 deposited at the end of each month in a mutual fund account that earns 12 percent annually during the period. Ans. A mortgage calls for monthly payments of $970.30, including interest at 7.6 percent. The current value of the mortgage is $95,258.72. Approximately how long will it take to fully amortize the mortgage? Ans. An income-producing property is priced at $550,000 and is expected to generate the following after-tax cash flows: Year 1: $50,000; Year 2: $55,000; Year 3: $60,000 and $600,000. Calculate the annual IRR for this investment opportunity. Ans.

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