Need Formula help for Discounting a Partially Amortized Loan
Makhdoom
STB for $180,000 at 6% amortized over 25 years. I feel this strategy
will make my property more saleable and attract potential buyers. As
you know financing through traditional sources is extremely difficult
given the property’s distant location, unique design, age, lack of
services and limited market appeal. I plan to sell the mortgage prior
to closing, but needs a cost estimate concerning the discount.
A local mortgage broker advises me that a private investor
knowledgeable in that particular cottage area would seriously consider
the mortgage, but requires an 11% yield.
To establish what the potential lender will pay (present value based
on 11% yield), the mortgage must be discounted at 11%. In other words,
the face amount must be reduced in order to increase the overall
return from 6% to 11%.
Assume that the my mortgage is based on a 5-year term, with the
investor’s yield expectation remaining the same.
The cost of sale would be reduced significantly given a balloon
payment at end-of-year five (EOY 5). The outstanding balance at the
end of year five is $161,706.07. Alter the amortization of the
mortgage to 60 payments (five years)
Please provide a maths formula for the present value calculated is
$147,933.18 with my cost now at $32,066.82 (180,000–147,933.18).
If I had limited the term to two years, the present value would rise
further to $164,679.43 with Seller cost at $15,320.57 (180,000–
164,679.43).
I don't know how my HP is calculating PV as present value =
$147,933.18, any idea , please guide me via formulas and hints. I like
to verify it by formulas prior to any decision.
Thanks