Real Estate; Refinancing - HP 12c Platinum Reference Manual

Refinancing

It can be mutually advantageous to both borrower and lender to refinance an existing
mortgage which has an interest rate substantially below the current market rate, with a
loan at a below-market rate. The borrower has the immediate use of tax-free cash, while
the lender has substantially increased debt service on a relatively small cash outlay.
To find the benefits to both borrower and lender:
1. Calculate the monthly payment on the existing mortgage.
2. Calculate the monthly payment on the new mortgage.
3. Calculate the net monthly payment received by the lender (and paid by the borrower)
by adding the figure found in Step 1 to the figure found in Step 2.
4. Calculate the Net Present Value (NPV) to the lender of the net cash advanced.
5. Calculate the yield to the lender as an IRR.
6. Calculate the NPV to the borrower of the net cash received.
Example: An investment property has an existing mortgage which originated 8 years ago
with an original term of 25 years, fully amortized in level monthly payments at 6.5%
interest. The current balance is $133,190.
Although the going current market interest rate is 11.5%, the lender has agreed to
refinance the property with a $200,000, 17 year, level-monthly-payment loan at 9.5%
interest.
What are the NPV and effective yield to the lender on the net amount of cash actually
advanced?
What is the NPV to the borrower on this amount if he can earn a 15.25% equity yield rate
on the net proceeds of the loan?
12c platinum / 12C
RPN Keystrokes
gÂ
fCLEARG
17gA
6.5gC
133190$
P?0

Real Estate

12c platinum
ALG Keystrokes
gÂ
fCLEARG
17gA
6.5gC
133190$
P?0
7
Display
Monthly payment on
-1,080.33
existing mortgage
received by lender.
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