Caculate the rate of return on a mortage purchased at a discount.Third Request

J

JIm Crary

How do I figure the rate of return on Mortgage if I
purchase the mortage at less the current value? ex
current balance 95,000 curent intrest 8% term remaining
300 mos orginal term 360 orginal balance 100,000 if I
paid 95 % opf the current balance what would my rate of
renur be ?
 
R

Ron Rosenfeld

How do I figure the rate of return on Mortgage if I
purchase the mortage at less the current value? ex
current balance 95,000 curent intrest 8% term remaining
300 mos orginal term 360 orginal balance 100,000 if I
paid 95 % opf the current balance what would my rate of
renur be ?

Jim's way is simple. Here is how I would approach your problem -- but I'm not
sure how 'correct' it is. I do get a different answer than Jim.

First of all, I would take the original mortgage and figure the balance after
60 payments:

=OriginalLoan + CUMPRINC(rate/12, nper, per1, per60, 0)
= $100,000 + CUMPRINC(8%/12,360,1,60,0)
= $95,069.86

The payments on the loan:

=PMT(8%/12, 360, $100,000)
=($733.76)

Your cost of the loan:
= $95069.86 * 0.95
= $90,316.36

Your RATE of return:
=RATE(300,($733.76),$90,316.36) * 12
=8.607%


--ron
 

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