A house is sold with an assumable $156,000 below-market loan at 8.5% for a remaining term of 15 years.Current rates are 9.75% for 15 year mortgages.If the house sold for $240,000,what is the cash-equivalent value of the house.
A)$250,834.82
B)$229,165.18
C)$260,660.40
D)$219,339.60

Question

Quizplus · Accepted Answer

The cash-equivalent value of the house is the sale price minus the present value of the benefit of the below-market loan. The benefit is the difference in payments between the market rate and the assumable loan rate, discounted at the market rate.

A House Is Sold with an Assumable $156,000 Below-Market Loan