# 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 7^{th} year?

**Related Book For**

## Statistics For Business And Economics

ISBN: 9780321826237

12th Edition

Authors: James T. McClave, P. George Benson, Terry T Sincich