RESIDENTIAL FINANCIAL ANALYSIS

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CHAPTER SIX

• RESIDENTIAL FINANCIAL ANALYSIS

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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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Incremental Borrowing Cost
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Calculator Solution

• n 25x12 300
• PV 10,000
• PMT 172.47
• FV 0
• i 20.57
• Incremental cost of borrowing weighted average
  12.95

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Early Repayment
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Calculator Solution

• n 5x12 60
• PV 10,000
• PMT 172.47
• FV 10,117.32
• i 1.7360 or 20.83 (annual)

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Origination Fees
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Calculator Solution

• n 25x12 300
• PV 8900
• PMT 172.47
• FV 0
• i 1.9316 or 23.18 (annual)

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Loan Refinancing and Early Payment
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Loan Refinancing and Early Payment Continued
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Loan Refinancing and Early Payment Continued
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Calculator Solution

• n 10x12 120
• PV 4105
• PMT 60.87
• FV 889
• i 14.21

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Early Loan Repayment Lender Inducements
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Calculator Solution

• n 5x12 60
• PV -33.348
• PMT 716.74
• FV 0
• i 10.50
• Is this attractive to the borrower?

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Market Value of a Loan
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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

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Effect of Below Market Financing
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Calculator Solution

• n 15x12 180
• PV 5000
• PMT 85.63
• i 1.6177 or 19.41 (annual)

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Wrap Around Loans

• Used to obtain additional financing while keeping
  an existing loan in place

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Calculator Solution

• n 15x12 180
• PV 30,000
• PMT 429.44
• FV 0
• i 15.46