## Question

# You made a purchase money mortgage on the office building you sold recently. The loan payments will be interest only. The purchase price was $1

You made a purchase money mortgage on the office building you sold recently. The loan payments will be interest only. The purchase price was $1 million and your loan was for 9% of the price. Monthly payments will be interest-only for four years at which time there will be a one-time balloon payment of the loan balance. How much will the new owners payment be if the interest rate on the purchase money mortgage is 10%; How much will your cash flows (not including the balloon payment) be worth at the end of the four years if the monthly payments can earn 7% compounded monthly?

Interest only Loan Payment* $1M x 9% x 10% = $9,000/12 = $750 *There is no amortization/principal payment so the balance due is the amount borrowed.

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