You are a homebuilder with excess houses in inventory and the local economy heading towards a...

80.2K

Verified Solution

Question

Finance

You are a homebuilder with excess houses in inventory and thelocal economy heading towards a recession. In order to stimulatehome sales, you offer the following promotion: 1.5% annual interestfor the first 3 years of your new mortgage!
You have contracted with a local bank to offer 30-year, fullyamortizing mortgages for your buyers at a rate of 3.95% per yearwith a .8 Loan-to-Value (LTV) ratio.
You have agreed to pay the bank the Present Value of thedifference in monthly payments between their rate of 3.95%/year andyour â€œteaserâ€ rate of 1.5%/year.
Your promotion is working, and soon you have a home undercontract to sell for $300,000. Using a Discount Rate of 5%/year,what is the amount which you willpay the bank at closing tocompensate them for the 3-year teaser interest rate?
Use Excel. Use $$$ please

Answer & Explanation Solved by verified expert

4.5 Ratings (911 Votes)

With 15 annual interest the monthly payment is calculatedusing PMT function in Excel as below rate 15 12 converting annual rate into monthly ratenper 30 12 30 year mortgage with See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member