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.

Based upon the information given:

(I) What is the amount of your gross quarterly income?

(2) What will be the amount of payments for the loan?

(3)What is the amount of the mortgage loan that the bank will approve based upon your payments?

(4) What is the amount of the building that you can afford?

(5) How much will the down payment be?

Answer 1

1)

Gross quarterly income = $ 1,875,000

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2)

Amount of payments for the loan = 31 % of gross quarterly income = 0.31 $ 1,875,000

Amount of payments for the loan = $ 581,250

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3)

The amount of the loan that the bank will approve equals the present value of the amount of payments of the loan.

Present value is calculated using the following equation

Amount of the mortgage loan approved by the bank = $ 6,242,360.95

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4)

Amount of the building the business can afford is calculated as follows

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5)

Down payment = 0.25 $ 8,323,147.93

Down payment = $ 2,080,786.98 $ 2,080,787