Description

Real Estate Investment & Analysis – Project#1: Fixed & Variable Rate Mortgages. 

The purpose of this project is to get you familiar with the technical side of different mortgage types. You will be using Excel to create amortization schedules, determine the remaining mortgage balance, and calculate the equity of the home owner at different points of time. 

You will be working on this project in a group of four to six students. The project is due on or before October 1st at 5:00 p.m. By that time you should submit electronic (via email) and physical copies of your assignment. If you turn your assignment late, 10% will be deducted from your grade. Additional 10% grade penalty will be charged for every calendar-day delay. Also, if you work on this project without a team, 10% will be deducted from your grade.

General Instructions for parts 1-4: For each part you are required to create an “input box” and an “output box” area. The user (me in this case) should be able to change ANY of the values included in the input box and receive the corresponding values included in the output box. The amortization table schedule should also change with different values entered into the input box. You are advised to use the Excel template I provide you for this project

The input and output boxes should include the following variables: original house value, initial mortgage amount, interest rate, additional monthly payment to principal (a constant amount that the borrower elects to pay over and above the required payment each and every month), holding period (in months – until the property is sold), expected home price annual appreciation rate, mortgage payment, initial loan-to-value, mortgage balance at end of the holding period and equity at end of holding period.

 Fully amortized fixed rate mortgage (CPM) 

1. Create a monthly amortization schedule for a fully amortized $350K, 15yr, 4.25% fixed rate mortgage. The original loan balance is 80% of the value of the house when initiated and the house is expected to appreciate at a rate of 2.0% annually. 

2. What is the remaining loan balance at the end of the holding period if the homeowner sells the home after 62 months? 

3. Illustrate with a well-labeled graph the amount of equity the homeowner builds throughout the holding period of the loan. 

4. What is the owner equity in the house at the time the house is sold?