Introduction
More than 80% of Norwegian households own the flat or house in which they live. Similar statistics for the EU and the US are 60% and 50%, respectively. As such, real estate represents by far the largest asset of most households. A main focus of this course is understanding payment and amortization structures of different type of mortgage loans typically encountered when financing residential real estate. Understanding how fixed versus adjustable-rate mortgages affect both interest rate and default risk, is key when addressing this question. Valuation of income-generating real estate assets is another major issue highlighted in conjunction with an analysis of how choice of financing affect both expected return and risk. While leverage (use of debt) entails added risk for owners, it also offers the potential advantage of tax savings due to the allowance for interest deduction. Taking into account personal as well as corporate taxes, the task of valuing commercial real estate is inseparable from the financing decision.