Yield of a Discounted or Premium Mortgage

Yield of a Discounted (or Premium) Mortgage

The annual yield of a mortgage bought at a discount or premium can be calculated given the original mortgage amount (PV), interest rate (I/YR), periodic payment (PMT), balloon payment amount (FV), and the price paid for the mortgage (new PV).

Remember the cash flow sign convention: money paid out is negative; money received is positive.

Example

An investor wishes to purchase a 100,000 mortgage taken out at 9% for 20 years. Since the mortgage was issued, 42 monthly payments have been made. The loan is to be paid in full (a balloon payment) at the end of its fifth year. What is the yield to the purchaser if the price of the mortgage is 79,000?

Step 1

Calculate PMT. Make sure FV = 0.

Set to End Mode. Press \¯if BEGIN annunciator is displayed.

Table 13-8 Calculating the monthly payment

KeysDisplay Description

JG\Í	12.00	Sets payments per year.
	12.00	Sets payments per year.

dÒ	9.00	Stores interest rate.
	9.00	Stores interest rate.

G:\Ú	240.00	Stores number of months.
	240.00	Stores number of months.

J:::::y		mortgage.
	-100,000.00	Stores original amount of
Ï

:É	0.00	Enters amount left to pay after
:É		20 years.

Ì	899.73	Calculates the regular payment.
	899.73	Calculates the regular payment.

Step 2

Enter the new value for N indicating when the balloon occurs, then find FV, the amount of the balloon.

Table 13-9 Calculating the balloon payment

Keys	Display	Description

\}Ì	899.73	Rounds payment to two decimal
\}Ì		places for accuracy.

Additional Examples 141

10bII+ Financial specifications

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HP 10bII+ Financial manual Yield of a Discounted or Premium Mortgage

Models: 10bII+ Financial

Yield of a Discounted (or Premium) Mortgage

JG\Í

10bII+ Financial specifications