An investor wants to finance a project in Canada with a value of $1.5 million with a 70 percent, 25-year loan* at a nominal (face) rate of 8 percent. The project's NOI is expected to be $120,000 during year 1 and the NOI, as well as its value, is expected to increase at an annual rate of 3 percent thereafter. The lender will require an initial debt coverage ratio of atleast1.20. Assume the outgoing cap rate is equal to the ingoing cap rate and the sale in Year 4 is based on Year 5 NOI. *Don’t forget that Canadian Mortgages compound semi-annually. If you are not familiar with amortizing mortgages, you can use the Financial Functions in Excel. The function requires that you work with five (5) variables: Pmt, Nper (in months), Pv, Fv and Rate. Also you need to decide if the payments are at the beginning or the end of the period (they are at the end – that is you get the loan and make the first payment at the end of the first month). d. What would be the loan-to-value ratio?
An investor wants to finance a project in Canada with a value of $1.5 million with a 70 percent, 25-year loan* at a nominal (face) rate of 8 percent. The project's NOI is expected to be $120,000 during year 1 and the NOI, as well as its value, is expected to increase at an annual rate of 3 percent thereafter. The lender will require an initial debt coverage ratio of atleast1.20. Assume the outgoing cap rate is equal to the ingoing cap rate and the sale in Year 4 is based on Year 5 NOI.
*Don’t forget that Canadian Mortgages compound semi-annually.
If you are not familiar with amortizing mortgages, you can use the Financial Functions in Excel. The function requires that you work with five (5) variables: Pmt, Nper (in months), Pv, Fv and Rate. Also you need to decide if the payments are at the beginning or the end of the period (they are at the end – that is you get the loan and make the first payment at the
end of the first month).
d. What would be the loan-to-value ratio?
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