Does the property qualify for this new loan based on its current income? Why or why not?

Mortgage Practice Problems
must show all your work to receive full points. Show your work on Word doc
Question 1
You are in the process of purchasing a new home. You intend to live there for 5-10 years. You have an accepted offer of $364,000, which is just under the asking price of $364,900. The appraisal your lender obtains values the home at $358,000.

Your lender has quoted you loans with the following terms:

Loan 1
Loan 2
Loan 3
6.75% interest rate
30-year amortization
Monthly compounding
75% loan-to-value (LTV) ratio

6.20% interest rate
15-year amortization
Monthly compounding
80% loan-to-value (LTV) ratio

7.85% interest rate
30-year amortization
Monthly compounding
92.5% loan-to-value (LTV) ratio

Determine the following:
1a. The principal for each loan (maximum amount you can borrow).
1b. The down payment for each loan.
1c. The monthly payment for each loan.
1d. What the balance will be in 5 years for each loan.
1e. How much interest you will have paid at the end of 5 years for each loan.
1f. What the balance will be in 5 years for each loan.
1g. How much interest you will have paid at the end of 5 years for each loan.

Your answer:

Loan 1
Loan 2
Loan 3
Principal

Down Payment

Monthly Payment

Balance at end of 5 years

Interest Paid at end of 5 years

Balance at end of 10 years

Interest Paid at end of 10 years

Question 2
You are in the process of building a new home. The home will cost $547,000 to construct, and the appraisal your lender obtained indicates a prospective value upon completion of $565,000.
Your lender has presented you with the following three loan options:
Loan A
Loan B
Loan C
7.25% interest rate
25-year amortization
Monthly compounding
70% LTV ratio
1% loan origination fee

7.05% interest rate
15-year amortization
Monthly compounding
80% LTV ratio
2 points
7.00% interest rate
30-year amortization
Monthly compounding
75% LTV ratio
1.5% loan origination fee and 2 points

Determine the following:
2a. The principal amount for each loan.
2b. The monthly payment for each loan.
2c. The amount of the loan fees for each loan.
2d. The net disbursement for each loan.
2e. The effective borrowing cost for each loan. (Don’t forget to annualize the rate.)

Loan A
Loan B
Loan C
Principal

Monthly Payment

Points/Loan Fees

Net Disbursement

Effective Borrowing Cost

Question 3
You have recently purchased a 64-unit apartment building with year 1 NOI of $11,250 per unit per year. You purchased the property based on a 9% cap rate. The appraisal your lender obtained indicated a value of $7,650,000.

Your lender has quoted you the following terms:
6.85% interest rate
30-year amortization
Monthly compounding
65% LTV ratio

Determine the following:
3a. The purchase price you are paying based on the year 1 NOI and cap rate given.
3b. The principal amount for the loan (max loan amount).
3c. The equity contribution/down payment for the purchase.
3d. The annual debt service for the loan
3e. The debt coverage ratio based on the year 1 NOI.
3f. The debt yield based on the year 1 NOI.
3g. The before-tax cash flow for year 1.
3h. The equity dividend rate for year 1.

Question 4
You own an 18,000 SF office building with current NOI of $31.20 per SF per year. You are refinancing the property, and the current market indicates a 10.25% cap rate. The appraisal your lender obtained indicated a value based on this NOI and cap rate.

Your lender has quoted you the following terms:
8.95% interest rate
20-year amortization
Monthly compounding
55% LTV ratio
1.55x debt coverage ratio
Prepayment penalty equal to 2% of loan balance at time of prepayment

Determine the following:
4a. The value indicated in the lender’s appraisal.
4b. The maximum amount for the loan based on the LTV ratio.
4c. The maximum amount for the loan based on maximum ADS indicated by the debt coverage ratio.
4d. The annual debt service for the lower of the loan amounts from 4b and 4c.
4e. The loan balance in year 4.
4f. The prepayment penalty if the loan is prepaid in year 4.

Bonus question
You purchased a 614,000 SF warehouse building 8 years ago for $35,110,000. You are considering refinancing.
Currently, rental rates average $5.75/SF. Market vacancies are 3.50%. The subject OER is stable around 12%. Market cap rates are now 7.5%.
Your lender has proposed refinancing based on a current valuation. Below are the original loan terms from 8 years ago and the new proposed loan terms.

ORIGINAL LOAN (OLD)
NEW LOAN
8.50% interest rate
30-year amortization
Monthly compounding
70% LTV ratio
Minimum 1.35 DCR
2% prepayment penalty (2% of loan balance at time of prepayment)
6.50% interest rate
25-year amortization
Monthly compounding
75% LTV ratio
Minimum 1.25 DCR

Determine the following:
B1. The current NOI based on the current market terms.
B2. The current market value based on the current NOI and current market cap rate.
B3. The maximum amount you can borrow with the new loan.
B4. The new annual debt service (ADS) based on the new loan terms.
B5. The balance of the original loan at the end of year 10.
B6. The prepayment penalty for the original loan.
B7. The net disbursement for the new loan considering the prepayment penalty for the old loan.
B8. The effective borrowing cost for the new loan.
B9. The DCR for the new loan based on the current NOI.
B10. Does the property qualify for this new loan based on its current income? Why or why not?

Last Completed Projects