calculate the value of a mortgage purchased at a discount

G

Guest

How do I calculate the rate of return on a mortgage purchased at a discount?
ex a mortgage has a intrest rate of 8% 100,00 prinipal bal. 18 years
remaining . I pay 85,000 what the current intrest rate ?
 
N

N Harkawat

=RATE(18*12,PMT(8%/12,18*12,-100000),-85000)*12
=10.46%

And the way to verify if your rate computed above is correct is to have the
same monthly instalement as if you had obtained a loan of 85000 @ 10.46% as
would be of a 100,000 loan @ 8% for 18 years

=pmt(10.46%/12,18*12,-85000) = 874.96
=PMT(8%/12,18*12,-100000) = 874.96
 

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