# 1. You’re investing in a 10-unit apartment building. The purchase

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1. You’re investing in a 10-unit apartment building. The purchase price is \$3,000,000. You
will finance the purchase with a loan at 75% of the purchase price, due in 10 years,
interest rate of 6.25%, with a 30-year amortization.
1. What is the monthly payment?
2. What is the annual debt service?
3. What are the net proceeds at loan funding?
4. What is the loan balance at maturity?
5. If the lender charges a 2% loan fee, what is the effective interest rate?
2. Assuming the same purchase in Problem 1, a different lender has offered you a loan in
the same amount, but at 6% with a 2.5% loan fee.
1. What is this loan’s effective interest rate?
2. All else being equal, which loan should you take?
3. You are looking to invest in a \$1,000,000 property. He can obtain either a 70% LTV loan
at 6% interest rate for 25 years or an 80% LTV loan at 7% interest for 25 years. Both
loans require monthly payments and are fully amortizing.
1. What is the monthly payment for each loan?
2. What is the incremental cost of borrowing the additional 10% of value?
4. Same assumptions as in #3 above, except both loans have a 2% loan fee and will mature
in 10 years. Both loans require monthly payments and are fully amortizing.
1. What is the monthly payment for each loan?
2. What is the incremental cost of borrowing the additional 10% of value?
5. An investor obtained a fully amortizing mortgage five years ago for \$765,000 at 7.5
percent for 30 years. Mortgage rates have dropped, so that a fully amortizing 25-year
loan can be obtained at 6.5 percent. There is no prepayment penalty on the mortgage

balance of the original loan, but 2 points will be charged on the new loan and other
closing costs will be \$2,000. All payments are monthly.
1. Should the borrower refinance if he plans to own the property for the remaining
loan term? Assume that the investor borrows only an amount equal to the
outstanding balance of the loan.
2. Would your answer change if they plan to own the property for only 5 more
years?

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