You are seeking financing for a $500,000 investment in an apartment building. The NOI in the first year is projected to be $35,000. The bank is willing to underwrite a fully-amortizing, 30 year fixed rate mortgage with constant monthly payments at an interest rate of 6%, compounded monthly.

Please note the following ratio:

Debt Coverage Ratio= Net Operating Income/ Annual Debt Service

The loan officer at the bank emails you about another mortgage which is available; an interest-only loan with an annual interest rate of 6%, with interest payments due every month. The bank is willing to underwrite this mortgage as long as the same two criteria described in part B. are satisfied.

(i) The loan-to-value ratio of the mortgage is less than (or equal to) 75% (ii) The Debt Coverage Ratio is greater than (or equal to) 1.5. What is the largest interest-only mortgage we can obtain from the bank such that the two criteria are satisfied?