MUST USE EXCEL
Submit one excel file, showing all work (show all step, use formulae in calculated cells). Use text boxes for any written answers. Answer each question in a new tab.
1. A property is available for sale that would normally be financed with a fully amortizing $80,000 loan at a 10% rate with monthly payments over a 25-year term. The builder is offering buyers a mortgage that reduces the payment by 50% for the first year and 25% for the second year. After the 2nd year, the regular payments would be made for the remainder of the loan term.
a. How much would you expect the builder to have to give to the bank to buy down the payments as indicated?
b. Would you recommend the property be purchased if it was selling for $5,000 more than similar properties that do not have the buydown available?
2. A borrower can obtain an 80% mortgage with an 8% interest rate and monthly payments. The loan is fully amortized over 25 years. Alternatively, he could obtain a 90% loan at an 8.5% rate with the same loan term. The borrower plans to own the property for the entire loan term.
a. What is the incremental cost of borrowing the additional funds?
b. How would your answer change if two points were charged on the 90% loan?
c. Would you answer to part (b) change if the borrower planned to own the property for only 5 years?
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