Homework #2 RELU 4400 Residential Real Estate Finance Name ________________________________ SITUATION A. You finance a 12-plex for $360,000 mortgage at 8.15% over a 25-year amortization with a bullet at the end of year 10. The lender requires 1 loan origination fee and 2 discount points at closing. 1. If you hold the loan for the full term what is the effective cost of funds? __________% 2. What is the effective interest cost for a prepayment at the end of 4 years? __________% MORE SITUATION. At the end of 5 years you sell the 12-plex. The loan is paid off. A prepaymant penalty requires an additional 2% of the remaining principal balance to be paid. 3. What is the amount of the prepayment penalty? $______________ 4. What has been the effective cost of funds over the 5 year life of the loan? ______% SITUATION B. You finance raw land on a demand loan for 1 year. Terms call for prepayment of interest on the loan, with no amortization. You borrow 195,000 at 8.55%. 5.
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