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RESIDENTIAL FINANCIAL ANALYSIS Chapter Objectives

RESIDENTIAL FINANCIAL ANALYSIS Chapter Objectives. Calculate the incremental cost of borrowing Evaluate the effect of prepayment penalties, origination fees and other charges Calculate the market value of an outstanding mortgage loan Below market financing and effect on sales price.

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RESIDENTIAL FINANCIAL ANALYSIS Chapter Objectives

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  1. RESIDENTIAL FINANCIAL ANALYSIS Chapter Objectives • Calculate the incremental cost of borrowing • Evaluate the effect of prepayment penalties, origination fees and other charges • Calculate the market value of an outstanding mortgage loan • Below market financing and effect on sales price

  2. Incremental Borrowing Cost

  3. Calculator Solution • n= 25x12= 300 • PV= 10,000 • PMT= $172.47 • FV= 0 • i= 20.57% • Incremental cost of borrowing weighted average= 12.95%

  4. Early Repayment

  5. Calculator Solution • n= 5x12 = 60 • PV= 10,000 • PMT= $172.47 • FV= 10,117.32 • i= 1.7360% or 20.83 (annual)

  6. Origination Fees

  7. Calculator Solution • n= 25x12= 300 • PV= 8900 • PMT= $172.47 • FV= 0 • i= 1.9316 or $23.18

  8. Loan Refinancing and Early Payment

  9. Loan Refinancing and Early Payment Continued

  10. Loan Refinancing and Early Payment Continued

  11. Calculator Solution • n= 10x12= 120 • PV= $ 4105 • PMT= 60.87 • FV= 889 • i= 14.21

  12. Early Loan Repayment: Lender Inducements

  13. Calculator Solution • n= 5x12 = 60 • PV= -33.348 • PMT= $ 716.74 • FV= 0 • i= 10.50 • Is this attractive to theborrower?

  14. Market Value of a Loan

  15. Calculator Solution • Loan Balance: • n= 15x12= 18 • i= 10% /12= .8333 • PMT= $ 772.02 • FV= 0 • PV= $ 71,842 • Market Value • Change i to 15% • i= 15% /12 = 1.25 • PV= $ 55,161

  16. Effect of Below Market Financing

  17. Calculator Solution • n= 15x12= 180 • PV= $ 5000 • PMT= $ 85.63 • i= 1.6177% or 19.41 (

  18. Wrap Around Loans Used to obtain additional financing while keeping an existing loan in place

  19. Calculator Solution • n= 15x12 = 180 • PV= $ 30,000 • PMT= $429.44 • FV= 0 • i= 15.46

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