12c-s - Introduction This Solutions Handbook has been...

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1 Introduction This Solutions Handbook has been designed to supplement the HP-12C Owner's Handbook by providing a variety of applications in the financial area. Programs and/or step-by-step keystroke procedures with corresponding examples in each specific topic are explained. We hope that this book will serve as a reference guide to many of your problems and will show you how to redesign our examples to fit your specific needs.
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2 Real Estate Refinancing It can be mutually advantageous to both borrower and lender to refinance an existing mortgage which has an interest rate substantially below the current market rate, with a loan at a below-market rate. The borrower has the immediate use of tax-free cash, while the lender has substantially increased debt service on a relatively small cash outlay. To find the benefits to both borrower and lender: 1. Calculate the monthly payment on the existing mortgage. 2. Calculate the monthly payment on the new mortgage. 3. Calculate the net monthly payment received by the lender (and paid by the borrower) by adding the figure found in Step 1 to the figure found in Step 2. 4. Calculate the Net Present Value ( NPV ) to the lender of the net cash advanced. 5. Calculate the yield to the lender as an IRR . 6. Calculate the NPV to the borrower of the net cash received. Example 1: An investment property has an existing mortgage which originated 8 years ago with an original term of 25 years, fully amortized in level monthly payments at 6.5% interest. The current balance is $133,190. Although the going current market interest rate is 11.5%, the lender has agreed to refinance the property with a $200,000, 17 year, level-monthly- payment loan at 9.5% interest. What are the NPV and effective yield to the lender on the net abount of cash actually advanced? What is the NPV to the borrower on this amount if he can earn a 15.25% equity yield rate on the net proceeds of the loan? Keystrokes Display CLEAR 17 6.5 133190 0 -1,080.33 Monthly payment on existing mortgage received by lender.
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3 Wrap-Around Mortgage A wrap-around mortgage is essentially the same as a refinancing mortgage, except that the new mortgage is granted by a different lender, who assumes the payments on the existing mortgage, which remains in full force. The new (second) mortgage is thus “wrapped around” the existing mortgage. The "wrap-around" lender advances the net difference between the new (second) mortgage and the existing mortgage in cash to the borrower, and receives as net cash flow, the difference between debt service on the new (second) mortgage and debt service on the existing mortgage. When the terms of the original mortgage and the wrap-around are the same, the procedures in calculating NPV and IRR to the lender and NPV to the borrower are exactly the same as those presented in the preceding section on refinancing.
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This note was uploaded on 10/02/2009 for the course UGBA 08547 taught by Professor Odean during the Fall '09 term at University of California, Berkeley.

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12c-s - Introduction This Solutions Handbook has been...

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