Assume a property can be purchased for $105,000. The existing mortgage has a balance of only...

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Finance

Assume a property can be purchased for $105,000. The existingmortgage has a balance of only $50,000, 15 years remaining andpayments are $507.13. You want to assume the mortgage, but need tofinance $70,000 total so you must take out a second mortgage for$20,000 for 15 years at 14%. Alternatively you could purchase anequivalent property for $100,000 by obtaining a loan for $70,000for 15 years at the market rate of 11%.
a.Â Â Â Â Â Â Â What is theeffective return (or cost) of assuming the loan and taking out a2^ndmortgage?
b.Â Â Â Â Â Â Â Is it better toassume the loan and take out a second mortgage, or should you buythe alternative property and finance the purchase with a new loanat the market rate (answer should be \"assume\" or \"new\"?

Answer & Explanation Solved by verified expert

3.6 Ratings (384 Votes)

We need to first calculate the cost of the existing mortgage by using the PV of ordinary annuity formula pluggingin the known values as follows 500005071311r180r Solving the above we get the Monthly r 075 ieEffective Annual r 10075121 938 Now athe See Answer

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