What will balloon payment be at the end of the fifth year

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Ace Development Company is trying to structure a loan with the First National Bank. Ace would like to purchase a property for $2.5 million. The property is projected to produce a first year NOI of $200,000. The lender will allow only up to an 80 percent loan on the property and requires a DCR in the first year of at least 1.25.

All loan payments are to be made monthly, but will increase by 10 percent at the beginning of each year for five years. The contract rate of interest on the loan is 12 percent. The lender is willing to allow the loan to negatively amortize; however, the loan will mature at the end of the five-year period.

a. What will the balloon payment be at the end of the fifth year?

b. If the property value does not change, what will the loan-to-value ratio be at the end of the five-year period?

Reference no: EM131326737

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