FINANCING MECHANICS PRACTICE PROBLEM

Mortgage Loan Underwriting Assumptions:

Property Purchase Price: $1,500,000

Appraised Market Value: $1,800,000

Property Net Income Estimate: $120,000 per year

Loan to Value Ratio: 80% (max)

Interest Rate: 6.0%, no points

- or - 5.0% with 5 points

Amortization Period: 20 years

Loan Term: 5 years

Required Debt Coverage Ratio: 1.35 (minimum)

Borrowers Additional Closing Costs: $50,000

CALCULATE THE FOLLOWING:

1. Loan amount available to the borrower based only on the LTV ratio

2. Maximum loan amount with the required 1.35x debt coverage ratio based on the two

interest rate options

3. Monthly Debt Service and Annualized Debt Service for each rate option

4. Mortgage Constants - Rm

5. Balloon Balance due at maturity for each interest rate option

6. Dollar amount of Points paid at closing

7. Lenders Effective Yield to maturity for each option

8. Effective Borrowing Cost (EBC) for each option

9. How would you decide which interest rate option to choose?

FINANCING MECHANICS PRACTICE PROBLEM Mortgage Loan Underwriting Assumptions: Property Purchase Price: $1,500,000 Appraised Market Value: $1,800,000 Property Net Income Estimate: $120,000 per year Loan - to - Value Ratio: 80% (max) Interest Rate: - or - 6.0%, no points 5.0% with 5 points Amortization Period: 20 years Loan Term: 5 years Required Debt Coverage Ratio: 1.35 (minimum) Borrower's Additional Closing Costs: $50,000 CALCULATE THE FOLLOWING: 1. Loan amount available to the borrower based only on the LTV ratio 2. Maximum loan amount with the required 1.35x debt coverage ratio - based on the two interest rate options 3. Monthly Debt Service and Annualized Debt Service for each rate option 4. Mortgage Constants - Rm 5. Balloon Balance due at maturity for each interest rate option 6. Dollar amount of Points paid at closing 7. Lender's Effective Yield to maturity for each option 8. Effective Borrowing Cost (EBC) for each option 9. How would you decide which interest rate option to choose