As the mortgage loan officer, you are computing the mortgage terms on an office building loan. The building is expected
Posted: Wed Mar 30, 2022 3:46 pm
As the mortgage loan officer, you are computing the mortgage
terms on an office building loan. The building is expected to
generate a net operating income of $250,000 in the next year.
Your bank requires the following conditions for loans on this
type of property:
Minimum Required Debt Coverage Rate = 125%;
Maximum Loan to Value Ratio = 75%.
Capitalization rate used in determining building value = 10%.
Contract mortgage rate = 8%.
Loan amortization and maturity = 20 years.
Maximum feasible Loan size: $1,875,000
Associated Annual Mortgage Payment: $190,972.89
Assume annual payments.
The borrower indicates that the loan rate and loan size are
just fine, but he would like an interest only loan (at 8%) for the
first 5 years. After that, he is prepared to make payments in order
to amortize the loan over the remaining 15 years.
Determine interest only loan payments for years 1 to 5,
the loan balance at the end of year 5, and the loan payments
required thereafter to amortize the loan over the full 20 years.
Finally, what will the loan balance be after 10 years?
Loan payments on interest only loan:
Loan balance at end of year 5:
Loan payments for years 6 to 20:
Loan balance after 10 years:
terms on an office building loan. The building is expected to
generate a net operating income of $250,000 in the next year.
Your bank requires the following conditions for loans on this
type of property:
Minimum Required Debt Coverage Rate = 125%;
Maximum Loan to Value Ratio = 75%.
Capitalization rate used in determining building value = 10%.
Contract mortgage rate = 8%.
Loan amortization and maturity = 20 years.
Maximum feasible Loan size: $1,875,000
Associated Annual Mortgage Payment: $190,972.89
Assume annual payments.
The borrower indicates that the loan rate and loan size are
just fine, but he would like an interest only loan (at 8%) for the
first 5 years. After that, he is prepared to make payments in order
to amortize the loan over the remaining 15 years.
Determine interest only loan payments for years 1 to 5,
the loan balance at the end of year 5, and the loan payments
required thereafter to amortize the loan over the full 20 years.
Finally, what will the loan balance be after 10 years?
Loan payments on interest only loan:
Loan balance at end of year 5:
Loan payments for years 6 to 20:
Loan balance after 10 years: