1.A property costs $125,000. A borrower can obtain an 80% loan with an 9% interest rate and monthly payments. The loan is to be fully amortized over 15 years. Alternatively he could obtain a 90% loan at an 9.25% interest rate with the same loan term. The borrower plans to own the property for the entire loan term. What is the incremental cost (rate) of borrowing the additional funds?
2.A property can be purchased for $120,000 subject to an assumable loan at 8% (below market reates) with 20 years remaining and a balance of only 70,000 and payments are $819.71. You want to assume the mortgage, but need to finance $98,000 total so you must take out a second mortgage for $28,000 for 20 years at 9%. Alternatively, there is a comaprable property for $110,000 for which you can obtain a loan of $98,000 for 20 years at the market rate of 8.5%. What rate of “return” would a borrower earn by assuming the loan and taking out a second mortgage instead of borrowing at the market rate?
0 comments