PLEASE HELP ME SOLVE THIS WITH FINANCIAL CALCULATOR / EXCEL FINANCIAL FUNCTIONS
ID: 2818119 • Letter: P
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PLEASE HELP ME SOLVE THIS WITH FINANCIAL CALCULATOR / EXCEL FINANCIAL FUNCTIONS
PLEASE HELP ME SOLVE THIS WITH FINANCIAL CALCULATOR / EXCEL FINANCIAL FUNCTIONS
You are planning to buy a property for $2,650,000 and want a 90 percent LTV loan. A lender indicates that the loan can be obtained for 30 years at 4.75 percent interest; however, two discount points will also be necessary for you to obtain this loan. a. What is the effective interest cost to the borrower, assuming that the mortgage is paid off after 30 years (full term)? b. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loan balance if the loan is repaid within eight years of closing. If you repay the loan after five years with the prepayment penalty, what is the effective interest cost?Explanation / Answer
Loan Amount = 2,650,000 * 0.9 = 2,385,000
EMI : using PMT Formula in Excel = PMT (0.0475/12,30*12,2385000,0,0) = 12441.29
(a). Interest Payment Monthly for First Month = Beginning value for the month (2385000) * Interest Rate (0.0475/12) = 9428.75
First Month ending Balance = Beginning Balance - EMI - Interest Payment for 1st Month = 2,381,999.34
Like this make an excel and put columns: Month, Beginning Balance, EMI, Interest Payment, Principle Payment, Ending balance
and Use these formulas:
Beginning Balance for Month = Ending Balance of Previous Month
Principle Payment = EMI - Interest Payment
Ending Balance = Beginning Blance - Principle Payment
Use these formula and make 360 rows (each for amonth) , Summ all the Interest Payment column Values, that will be your answer.
Answer = $2,083,997.15
(b). Ending Balnce at the end of 4 Year 11th Month = $ 2,186,021.25
Pre Payment Penalty = $43,720.42
Interest Cost = Sum of Intrest Column devloped in part a till 4 year 11 Month = $ 535,057.30
Effective Interest Cost = 43,720.42 + 535,057.3 = $578,777.72
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