Solution 24650: Calculating a Wrap around Loan on the BA II PLUS™ and BAII PLUS™ PROFESSIONAL.
How do I calculate the yield for a wrap around loan on the BA II Plus and BA II Plus Professional?
The BAII PLUS and BA II PLUS PROFESSIONAL do not have a built-in function to calculate a Wrap Around Loan. However, using the steps listed below is a way around to calculate the yield of a wrap around loan.
Example:
Seller initiates wrap around loan 5 years after owning mortgage.
Seller Details:
Loan (PV) - $38,000
Term (N) - 30 years
Interest Yield (I/Y) - 8.5%
Payment (PMT) – $305.99
Buyer Details:
Loan (PV) - $76,000
Term (N) - 25 years
Interest Yield (I/Y) - 12%
Payment (PMT) – $800.45
First, we need to take the buyer's wrap around loan amount minus the balance outstanding on the seller mortgage. The buyers wrap loan amount is $76,000.
To find the balance outstanding follow the below keystrokes:
1) Press [2nd] and then [I/Y] to enter the P/Y menu and press 12 then [ENTER] to set the compounding periods to 12.2) Press [CE|C] twice to exit this menu and clear the display.
2) Enter 38000 and then press [PV].
3) Enter 360 and then press [N]. 360 is used, as 30 years is 360 months.
4) Enter 8.5 and then press [I/Y].
5) Enter 305.99, and then [+/-] to change the number to negative. Press [PMT] to store the payment.
6) Enter 0 and press [FV] to zero out any value stored in Future Value.
Once you put in all your information you need to enter the amortization worksheet to calculate the outstanding balance. Follow the instructions below:
7) Press [2nd] and then [PV] to enter the Amortization worksheet.
8) Enter 1 then press [Enter].
9) Press [↓] to reach P2 then enter 60 and then press [Enter].
Please Note: P1 stands for the first period of the amortization worksheet and P2 is the ending value of the amortization worksheet. Since we are looking for the value after 5 years, we enter 60 as 5 years is equal to 60 months.
10) Press [↓] and we will see our Balance (BAL) $35,258.78.11) Press [STO] then [1] to store this value to register 1
12) Press [CE|C] three times to exit and clear the screen
13) Enter the buyers wrap loan amount 76000 and then press [-]. Press [RCL] 1 to recall the BAL and press [=] to get the final value of 40741.22.
Next you would subtract the Down Payment that the Buyer is putting down. In our example, we do not have one so we will subtract 0 and use 40741.22 as the PV in our final problem.
14) Press [PV] to store this value
To calculate our payment for our final problem, take the buyer's payment and subtract from the seller's payment.
15) Enter 800.45 then press [-] and enter 305.99 and press [=] to get the final value of 494.46.
16) Press [+/-] on the calculator to change the number to negative and store it as the payment by pressing [PMT].
17) Enter 300 and then press [N].
18) Enter 0 and then press [FV].
19) Finally press [CPT] and then [I/Y] to get the yield of our wraparound loan of 14.13.
Please see the BA II Plus and BA II Plus Professional guidebooks for additional information.