Question

In: Finance

A property has a maturing loan and needs to be refinanced. It is appraised at $25...

A property has a maturing loan and needs to be refinanced. It is appraised at $25 million based on a cap rate of 6%. Your lender has put two constraints on your next loan. It must have debt service coverage of 1.5x and LTV of 50%.  Interest rates are 5% and the lender offers you a 10-year loan with a 20- year amortization schedule.

  1. Which constraint limits your loan?
  2. How much can you borrow?

Solutions

Expert Solution

first year NOI / value = cap rate

NOI = 6%*25 million = 1.5 million

1. Debt service coverage ratio = first year NOI / debt service = 1.5 million / 1.5 = 1 million

corresponding loan amount = 1 million / 5% = 1 million/0.05 = 20 million

2. Loan-to-value ratio = loan amount/ appraisal value

loan amount = 50% * 25 million = 12.5 million

Maximum Loan amount = Min. ( 20 million, 12.5 million )

Maximum loan amount = 12.5 million and loan-to-value ration constraints your loan amount.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

A property worth $16 million can be refinanced with an 85% loan at 9.5% over 20...
A property worth $16 million can be refinanced with an 85% loan at 9.5% over 20 years. The balance on the current loan is $12,148,566. Loan payments are $113,302 per month. The loan balance in 10 years will be $8,396,769. If the property is expected to be sold in 10 years, what is the incremental cost of refinancing? a)11.18% b)12.42% c) 10.45% d) 10.94%
Jaylin makes a 25-year loan of 150,000 to Susan. Susan needs to repay this loan by...
Jaylin makes a 25-year loan of 150,000 to Susan. Susan needs to repay this loan by level end of year payments R. Jaylin will replace her capital via a savings account which offers annual effective interest rate 6% and earn an APY of 4%. Find R.
A problem of interest is the relationship between the appraised value of a property and its...
A problem of interest is the relationship between the appraised value of a property and its sale price. The sale price for any given property will vary depending on the price set by the seller, the strength of appeal of the property to a specific buyer, and the state of the money and real estate markets. We want to examine the relationship between the mean sale price E(y) of a property and the variables: appraised land value of the property,...
bob buys a property for $140,000. He is offered a 25-year loan by the bank, at...
bob buys a property for $140,000. He is offered a 25-year loan by the bank, at an interest rate of 6.88% per year. What is the annual loan payment Dan must make?   ________. A businessman wants to buy a truck. The dealer offers to sell the truck for either $145,000 now, or 7 yearly payments of $24,000. What interest rate would make these two options financially equivalent?
Jim wants to buy a property and needs to borrow 195,000. He can get a loan...
Jim wants to buy a property and needs to borrow 195,000. He can get a loan at 7% for 25 years. Loan origination fees will be $4,700. Assume the lender also imposes a prepayment penalty of 3 percent of the outstanding loan balance if the loan is repaid within 8 years of closing. If Jim repays the loan after 6 years with the penalty, what is the effective interest rate? 8.1% 7.0% 7.9% 7.5%
ABC company has a $10 million loan maturing in 3 months that it plans to roll...
ABC company has a $10 million loan maturing in 3 months that it plans to roll over for a further six months. The company treasurer feels that interest rates will be higher in three months when rolling over the loan. Suppose the current 6-month LIBOR rate is 1.9%. a) Explain how ABC company can use an FRA at 2% from Banque Paribas to lock in a guaranteed six-month rate when it rolls over its loan in three months (e.g. buy/sell...
ABC company has a $10 million loan maturing in 3 months that it plans to roll...
ABC company has a $10 million loan maturing in 3 months that it plans to roll over for a further six months. The company treasurer feels that interest rates will be higher in three months when rolling over the loan. Suppose the current 6-month LIBOR rate is 1.9%. a) Explain how ABC company can use an FRA at 2% from Banque Paribas to lock in a guaranteed six-month rate when it rolls over its loan in three months (e.g. buy/sell...
Tom wishes to purchase a property that has been valued at $300,000. He has 25% of...
Tom wishes to purchase a property that has been valued at $300,000. He has 25% of this amount available as a cash deposit, and will require a mortgage for the remaining amount. The bank offers him a 25-year mortgage at 2% interest. Calculate his monthly repayments. Give your answer in dollars and cents.
A mortgage loan of $200,000 has just been made on a property valued at $250,000. The...
A mortgage loan of $200,000 has just been made on a property valued at $250,000. The interest rate is 5% with 2 points with a 10 year balloon. Monthly amortization payments are based on a 30 year maturity. The mortgage also carries a 2% prepayment penalty. a. What is the indicated loan-to-value ratio? b. What is the monthly mortgage payment? c. How much interest is paid in the fourth year? d. What is the dollar amount of the balloon payment?...
Appraised Value Property Size Age 467.8 0.2249 44 363.9 0.2169 56 429.9 0.1631 27 540.5 0.4672...
Appraised Value Property Size Age 467.8 0.2249 44 363.9 0.2169 56 429.9 0.1631 27 540.5 0.4672 18 405.8 0.2523 47 375.2 0.2214 86 318.2 0.1864 46 748.4 0.5062 7 212.8 0.2274 59 632.4 0.1385 13 349.4 0.1749 58 356.5 0.4216 49 359.6 0.2518 43 273.9 0.1158 17 303.8 0.1685 62 280.9 0.1746 58 390.4 0.3873 46 617.5 0.6578 47 313.9 0.1718 58 361.8 0.1425 75 1. Construct a​ 95% confidence interval estimate for the the mean appraised value for houses...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT