Ben Dover (Eileens brother) is purchasing a duplex in Colorado Springs for $650,000 and is financing the
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Question:
Ben Dover (Eileen’s brother) is purchasing a duplex in Colorado Springs for $650,000 and is financing the purchase with a mortgage loan. Here are the particulars:
80% LTV
Loan 1: 3.625% interest rate w no points
Loan 2: 3.250% interest rate w 1.5 points
15-year term
Monthly payments
Required:
- Prepare amortization schedules for each of the two loan alternatives. Set these up to show year-end balances, not month-end balances.
- Calculate the effective interest rates for each, assuming no early repayment.
- Calculate the effective interest rates for each, assuming the loans are paid off at the end of year four (4).
- Calculate the breakeven point for recovery of points for the second loan.
- Calculate the IRR for the second loan, assuming (a) the loan is carried to full term and (b) the loan is repaid at the end of year 4.
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