Price of a Mortgage Traded at a Discount or Premium
Mortgages may be bought and/or sold at prices lower (discounted) or higher (at a
premium) than the remaining balance of the loan at the time of purchase. Given
the amount of the mortgage, the periodic payment, the timing and amount of the
balloon or prepayment, and the desired yield rate, the price of the mortgage may
be found. It should be noted that the balloon payment amount (if it exists) occurs
coincident with, and does not include, the last periodic payment amount.
Information is entered as follows:
1. Press gÂ and fCLEARG.
2. Key in the total number of periods until the balloon payment or prepayment
occurs; press n. (If there is no balloon payment, key in total number of
payments and press n.)
3. Key in the desired periodic interest rate (yield) and press ¼.
4. Key in the periodic payment amount; press P.
5. Key in the balloon payment amount and press M.
payment, go to step 6.)
6. Press $ to obtain the purchase price of the mortgage.
Example 1: A lender wishes to induce the borrower to prepay a low interest rate
loan. The interest rate is 5% with 72 payments remaining of $137.17 and a
balloon payment at the end of the sixth year of $2,000. If the lender is willing to
discount the future payments at 9%, how much would the borrower need to prepay
the note ?
Positive for cash received; negative for cash paid out.
Section 12: Real Estate and Lending
Monthly interest rate
Annual percentage rate.
(If there is no balloon
Months (into n).