real estate finance exam 2 Questions With Multiple Choices And Verified Answers.
1 view 0 purchase
Course
REAL ESTATE.
Institution
REAL ESTATE.
incremental borrowing cost - correct answer calculations:
-what is the real cost of borrowing money at higher interest rate? and what is the required return to justify my lower down payment?
basic principal when comparing choices: what are the cash flow di...
-now why would the owner be willing to give you a below market rate? a seller with below market rate
assumable loan in place may be able to sell the property for more than the seller would otherwise be
able to
-a buyer is paying a higher purchase price now in exchange for lower debt payments over the life of the
loan
-compute Interest rate and compare it to other equivalent risk investments
effect of LTV ratio on loan cost - correct answer -the more you borrow the higher
the interest rate will be
-it is not economically rational to borrow as much money as possible because the interest rate will be to
high
accounting for holding period - correct answer -how much should i borrow?
calculations:
different fees - correct answer
,differences in maturity - correct answer
refinance or no refinance, with and without PPP - correct answer refinance: pay off
current loan with new loan
- why refinance?= cash, contractually required, get a lower rate
things to consider when refinancing:
-how much to pay of the original loan today?
-what is the new mortgage payment?
-how much will you save every month?
-it cost(blank) today to get those monthly savings what is the return on investment?
effective cost of multiple loans - correct answer calculations:
-compute payment for the loans
-combine into cash flow stream
-compute the effective cost of the amount borrowed given the cash flow stream
-compare the cost to alternative financing options
assume or not assume - correct answer -common in 70 and 80s for residential not
common for commercial
two options:
1. buy the property with market financing
2. assume the current owners loans and get a second mortgage at the market rates
-assume if the cost of assuming and getting a 2nd mortgage is less than the cost of 1 loan
pricing with an assumable loan - correct answer -calculate PMT on assumable loan
-how much would the buyer be able to borrow at market rates and get that payment?
, -benefit to buyer /borrower of below market financing= cash equivalent(CE) value of seller financing(FP)
builder buy down - correct answer temporarily buys down borrowers PMT for a
certain period of time
-what builder pays lender upfront for buy down is the same as if they just lowered the price and they do
this so the transaction price does not reflect the incentives given
two embedded options in mortgages - correct answer -prepayment call option
-default
prepayment(callability)risk - correct answer call option embedded in contract that
gives borrowers the right to pre pay outstanding balance
-only exercise when " in the money"
-substantial decrease in rates= refinance
-any increase in rates= hold tight
LENDERS ALWAYS worse with a change in interest rates, most acute in FRM
non strategic prepayment - correct answer need to move
-bad for lenders because they have to reinvest at a lower rate
value of repayable versus non-callable mortgage to lender - correct answer
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller RealGrades. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.49. You're not tied to anything after your purchase.
