Suppose you want to purchase a property for $205,000 and you have $30,000 to put down as a down payment. The property has an existing mortgage that can be wrapped. This loan is a fixed-rate mortgage at 7 percent, monthly payments. This loan had an original balance of $150,000 and has 20 years remaining on its original 30-year term. The current market rate for a new fixed-rate loan is 10.50 percent for 20 years. The seller will give you a wrap loan for an amount equal to the purchase price minus the down payment at 8.75 percent, monthly payments. What is the effective equity yield for the wrap lender if the wrap loan is written for a term equal to the remaining term of the existing mortgage and both are held to maturity?
Suppose you want to purchase a property for $205,000 and you have $30,000 to put down as a down payment. The property has an existing mortgage that can be wrapped. This loan is a fixed-rate mortgage at 7 percent, monthly payments. This loan had an original balance of $150,000 and has 20 years remaining on its original 30-year term. The current market rate for a new fixed-rate loan is 10.50 percent for 20 years. The seller will give you a wrap loan for an amount equal to the purchase price minus the down payment at 8.75 percent, monthly payments. What is the effective equity yield for the wrap lender if the wrap loan is written for a term equal to the remaining term of the existing mortgage and both are held to maturity?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 15P
Related questions
Concept explainers
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
Question
- Suppose you want to purchase a property for $205,000 and you have $30,000 to put down as a down payment. The property has an existing mortgage that can be wrapped. This loan is a fixed-rate mortgage at 7 percent, monthly payments. This loan had an original balance of $150,000 and has 20 years remaining on its original 30-year term. The current market rate for a new fixed-rate loan is 10.50 percent for 20 years. The seller will give you a wrap loan for an amount equal to the purchase price minus the down payment at 8.75 percent, monthly payments. What is the effective equity yield for the wrap lender if the wrap loan is written for a term equal to the remaining term of the existing mortgage and both are held to maturity?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College