In: Finance
Assume a lender requires a 1.3 debt coverage ratio as a minimum and the net operating income of a property is $86,400. What is the maximum loan you would expect to negotiate if a lender is offering a 30 year self-amortizing loan structure at 6% (with monthly payments)? (rounded)
a. | $923,700 | |
b. | $688,400 | |
c. | $749,600 | |
d. | $841,400 |
Debt Coverage Ratio = Net Operating Income/Total Debt Service
1.3 = $86,400/Total Debt Service
Total Debt Service = $66,461.54
So, Monthly Loan Payment = Total Debt Service/12 = $66,461.54/12
Monthly Loan Payment = $5,538.46
Calculating the Loan Amount Based on the Monthly Payment:-
Where, C= Monthly Loan Payment = $5,538.46
r = Periodic Interest rate = 6%/12 = 0.5%
n= no of periods = 30 years*12 = 360
Present Value = $923,768.68
So, the maximum loan you would expect to negotiate (rounded) to is $923,700