Question

A property has an underwritten net cash flow of $2 million. A first mortgage is sized using a 3.7% interest rate, 30-year amortization, and a net cash flow debt service coverage ratio of 1.45x. What is the maximum loan it qualifies for using a NCF DSCR sizing constraint?

a) $32,855,018 b) $24,744,430 c) $24,972,144 d) $37,278,658

Answer 1

Given that

Underwritten net cash flow (NCF)= $2 Million

NCF DSCR Constraint= 1.45x

Therefore, maximum permissible monthly payment NCF DSCR sizing constraint= $2 Million/1.45

= $1,379,310.34

Also given that

Interest rate on loan= 3.7%

Term of loan= 30 years

Maximum loan qualified as per the constraint= $ 24,744,430

The answer is option (b)

Calculation of loan amount as follows:

2 A B C D 1 Loan amount on constant periodical payments Payments at the end of each period 3 Loan amount eligible is calculated using the formula 1*{[(1+r)^n)-1}/r*(1+r)^n 4 Where I= Periodical payments, 5 n= Number of installments. 6 r= Rate of interest per year in decimals 7 All amounts in $ 8 Given that 9 Periodical payments (1) 1379310 No. of years (N)= 30 10 Rate of interest (% p.a)= R= 3.7 11 12 Calculations: 13 Formula Cell reference Value 14 Interest rate per year in decimals (r )= R/(100*12) D10/(100*12) 0.037 15 No. of years (n)= N*12 G9*12 30 16 (1+r)= 1+G14 1.037 17 (1+r)^n= G164G9 2.974148791 18 [(1+r)^n]-1= G17-1 1.974148791 19 Loan amount (P)= 1* {[(1+r)^n)-1}/r*(1+r)^n D9*G18/(G14*G17) 24,744,430.3332 20 Rounded to $ 24,744,430