Business, 12.03.2021 15:10 deneshau

A developer is offering a buy down loan whereby the interest rate will be bought down during the first 2 years of the mortgage. The rate for year 1 will be 6%; year 2, 7%; and years 3 through 30, the market rate of 8%. A buyer is considering purchasing one of the developer's new homes, which is priced at $300,000. The borrower expects to put down $60,000 and pay a 1% origination fee and 1 discount point at closing. a) Determine the borrower's before-tax effective borrowing cost assuming that the borrower will hold the mortgage for 8 years.
b) By what amount could the developer increase the selling price of the house?
Assume that the developer’s required rate of return is 12%.

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A developer is offering a buy down loan whereby the interest rate will be bought down during the fir...

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