In order to entice buyers, a builder is offering $250,000 conventional mortgage loans on new home...
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In order to entice buyers, a builder is offering $250,000 conventional mortgage loans on new home sales at 5.00% fixed to be amortized over 30-year terms. Current market rates for 30-year fixed-rate mortgage loans to borrowers of excellent credit are 6.50%. The homes being marketed have a competitive market value of $312,500 without any special (discounted) financing. 1. At what price should the builder sell the properties (disregarding marketing, transaction, and closing costs) to earn a/the market rate return of 6.50% in the loan (assuming the builder - or the builder's children must hold the loan(s) for the entire loan term? 2. How would the answer to question 1 change if the builder assumes that homes will be resold after an average period of 10 years, at which time loans will be repaid? In order to entice buyers, a builder is offering $250,000 conventional mortgage loans on new home sales at 5.00% fixed to be amortized over 30-year terms. Current market rates for 30-year fixed-rate mortgage loans to borrowers of excellent credit are 6.50%. The homes being marketed have a competitive market value of $312,500 without any special (discounted) financing. 1. At what price should the builder sell the properties (disregarding marketing, transaction, and closing costs) to earn a/the market rate return of 6.50% in the loan (assuming the builder - or the builder's children must hold the loan(s) for the entire loan term? 2. How would the answer to question 1 change if the builder assumes that homes will be resold after an average period of 10 years, at which time loans will be repaid?
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To earn a market rate return of 650 on the loan the builder needs to adjust the price of the properties The builder can calculate the present value of ... View the full answer
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