The purpose of this question is to understand the difference between loan-to cost, loan-to value, how a
Question:
The purpose of this question is to understand the difference between loan-to cost, loan-to value, how a mortgage amortizes over time (i.e. gets reduced through annual principal payments), and how an increase in value along with a reduction in the mortgage debt can impact the loan-to-value (LTV) upon refinancing.
The borrower purchased a property for $12MM and arranged a mortgage for $9MM (75% LTC). The mortgage terms are as follows:
Mortgage Amount: $9MM
Interest rate: 10%
Loan Term: 7 years
Amortization Schedule: 25 years
At loan maturity, what is the outstanding principal and what is the Loan to Cost (LTC) at that time (amortizing monthly)?
Over the 7 year period, the building appreciates from $12MM to $15MM. What is the Loan to Value (LTV) in the 7th year?
Statistics For Business And Economics
ISBN: 9780321826237
12th Edition
Authors: James T. McClave, P. George Benson, Terry T Sincich