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REFHW_3SFall2007

# REFHW_3SFall2007 - Real Estate Finance Homework#3 Solutions...

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05/13/2009 Real Estate Finance Homework #3 Solutions File: REFHW#3SFall2007 Real Estate Finance Homework #3 Solutions Fall 2007 Problem 1 (a) House price = \$120,000 Loan A 80% loan Loan B 90% \$96,000 loan amount \$108,000 loan amount 9.00% rate 9.50% rate 25 year amort 25 year amort (\$805.63) Monthly pmt (\$943.59) Monthly pmt Difference in loan proceeds = \$12,000 Difference in mo. pmt = (\$137.96) Term = 300 I = 13.29% 1 (b) Loan B \$108,000 points \$(2,160) Loan B proceeds \$105,840 Difference in loan proceeds = \$9,840 Difference in mo. Pmt = (\$137.96) Term = 300 I = 16.55% 1 (c) Loan A Loan A PMT (\$805.63) PMT (\$943.59) I 9.00% I 9.50% N 240 N 240 PV \$89,541.54 loan balance EOY 5 PV \$101,229.57 loan balance EOY 5 Difference in loan proceeds = \$9,840 Difference in mo. Pmt = (\$137.96) Difference in Loan Balance EOY 5 (\$11,688.03) Term = 60 I = 19.10% Problem 2 (a) Old Loan New Loan PV = \$150,000.00 PV = \$144,861.48 I = 10.00% I = 9.00% N = 360 N = 300 PMT = (\$1,316.36) PMT = (\$1,215.67) Balance at end of year 5 New Loan \$144,861.48 I = 10.00% less: Points (2,897.23) N = 300 less: OOP (2,000.00) PMT = (\$1,316.36) Loan Proceeds \$139,964.25 PV = \$144,861.48 PV = \$139,964.25 PMT = (\$1,215.67) N = 300 I = 9.43% The Effective Borrowing Cost of the new loan is lower than 10% therefore, the borrower should refinance.

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