Question

13. Ann is looking for a fully amortizing 30 year Fixed Rate Mortgage with monthly payments for $3,200,000.

Mortgage A has a 4.38% interest rate and requires Ann to pay 1.5 points upfront.

Mortgage B has a 6% interest rate and requires Ann to pay zero fees upfront.

Assuming Ann makes payments for 2 years before she sells the house and pays the bank the balance, what is Ann’s annualized IRR from mortgage A?

Answer 1

Upfront fee for mortgage A=$3200000*1.5%=$48000, monthly rate=4.38%/12=0.37%

Her monthly payment would be $159,865.67

Now, below is amortization schedule for 24 month:

Payment at the end of 24th month= 159865.67+30921856=31081721.43

Hence, IRR calculation is given below:

Hence, annualized IRR= (1+0.365%)^12-1=4.47%