Assume a $10,200,000 mortgage is approved for the project for a yearly 30-year 6

Question

Assume a $10,200,000 mortgage is approved for the project for a yearly 30-year 6% loan. b) What is the mortgage payment (debt service)? Is it covered by the project net operating income? Mortgage Payment = c) Write the formula for and calculate the breakeven vacancy rate, i. e. the vacancy rate that makes the NOI = mortgage payment d) What is the balance of the loan after 5 years of payment? Balance = e) The developer had to save money for the past 20 years to purchase the land on which the building is to be constructed for $800,000. Assuming he had to put aside the same amount every year in an account earning 6% per year, how much did he have to put aside every year? Yearly Annuity (Saving) =

Explanation / Answer

b) The mortgage payment is the payment of the principle amount of the loan. No, it is not covered by the project net operating income because it is the "Cash Flow" transaction and not revenue nature transaction.

Mortgage Payment = $10200000 / 30 = $340,000

c) Formula for the bread even to the mortgage amount =

Revenues - all Expenses including interest on mortgage and taxes & except non-cash transaction like depreciation = Cash free of all charges = Mortgage Payment

d) The balance of the loan after 5 years of payment = $10,200,000 - ($340000 * 5) = $8,500,000

e) Amount to be set aside every year to have $800,000 after 20 years =

Yearly amount = Maturity Amount * Interest rate / (1 + interest rate)n*1 - 1

= 800000 * 0.06 / 1.0620  - 1

= 48000 / 3.207135 - 1 = $21747.65 per year

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