Reference no: EM132028293

Tillman Bragg has just received a 15-year mortgage loan for his newly acquired Sundower Inn.

The purchase was financed with an $8,000,000 loan with a stated quarterly interest rate of 2%.

Payments are due every 3 months. Assume a marginal tax rate of 30%. The loan can be refinanced at the end of year five for 10 years as follows:

1) 7% annual rate

2) annual payments

3) closing costs of new financing equal 3% of new loan. Assume the closing costs are part of the new loan.

4) prepayment penalty of 0.5% of the balance due. This would also be part of the new loan.

Questions:

1) Prepare a loan repayment schedule for the first 5 years.

2) What is the total interest expense for this loan over 5 years?

3) What is the interest expense less the associated tax for year one?

4) What is the balance owed at the end of 5 years?

5) What would be the amount of the new mortgage if the property were refinanced at the end of 5 years?

6) What would be the annual mortgage payment if the property were refinanced?

7) Explain whether the property should be refinanced 5 years hence.