Question

Your business is looking to buy a building. The bank has approved your application for a 15 year mortgage loan at a rate of 4.50% as long as your mortgage payments equal 31% of your gross quarterly income. You need to have a 25% down payment towards the purchase of the building. Your company's annual income is $7,500,000.

The amount of payments for the loan is 581,250

Payments are made quarterly

Based upon the information given:

A. What is the amount of the mortgage loan that the bank will approve based upon your payments?

B. What is the amount of the building that you can afford?

C. How much will the down payment be?

Answer 1

here loan payment made at quarterly.

loan payment = P * r * (1+r)n / [ (1+r)n -1]

here loan payment = 581,250 made at quarterly

p = loan amount or mortgage amount

r = rate for period= 4.5% /4 = 1.125% per quarter

n = number of periodic total payments= 15 years * 4 payments per year = 60 payments

581,250 = P * 0.01125 * (1.01125)60 / [ (1.01125)60 - 1]

581250 = P * 0.01125 * 1.956645179 / 0.956645179

581250 = P * 0.023009846

P = $ 25,260,925.2393

Loan amount = $ 25,260,925.2393

2) here

amount of the building that you can afford = loan amount + down payment

down payment = 25% of purchase price of building

then loan amount = 100 - 25% = 75% of the purchase price of building

loan amount = 75% * purchase price

purchase price = 25,260,925.2393 / 0.75 = $ 33,681,233.6524

3) Down payment

Down paymet = 25% of purchase price = 25% * 33,681,233.6524

Down payment =8,420,308.413