Description
Question:
Discussion with lenders indicates that a loan can be obtained for 75% of a property’s market value. Loan terms will probably be 8% interest, 20-year amortization (monthly payments), with the rate renegotiable after 7 years. The property is estimated to be worth $200,000.
a) How much can be borrowed?
b) What will be the annual debt service?
c) What is the expected annual loan constant?
Answer:
a)
Borrowing amount:
= $200,000*75%
= $150,000
b)
Equal monthly payment | [P×r×(1+r)^n]÷[(1+r)^n-1] | |
Here, | ||
1 | Interest rate per annum | 8.00% |
2 | Number of years | 20 |
3 | Number of compounding per annum | 12 |
4 = 1÷3 | Interest rate per period ( r) | 0.67% |
5 = 2×3 | Number of periods (n) | 240 |
Loan amount (P) | $ 150,000 | |
Equal monthly payment | $ 1,254.66 | |
150000*0.67%*(1+0.67%)^240)/((1+0.67%)^240-1) |
Annual debt service = Equal monthly payment*12
= $1,254.66
= $15,055.92
c)
Annual loan constant:
= [Interest rate/12]/(1-(1/(1+[Interest rate/12])^n))*12
= [8%/12]/(1-(1/(1+[8%/12])^240))*12
= 10.04%
Reviews
There are no reviews yet.