+0

+1
143
2

Can somebody help, please, on this unanswered question:  https://web2.0calc.com/questions/commercial-mortgage. Thank you very much.

Nov 3, 2018

#1
+1

ABC Construction Company obtained a mortgage on a commercial property for \$1,000,000 for a term of 30 years at 6% compounded monthly. The ABC Company agreed with the lender that in addition to the monthly payments, it will pay down \$50,000 in principal beginning at the end of the first year and continue until the entire mortgage is paid off. How long would it take to pay off the entire mortgage and how much interest would the ABC Company save in this arrangement? Any help would be greatly appreciated. Thank you in advance.

OK, I shall use this online financial calculator to figure this out: https://arachnoid.com/finance/
1 - The first thing to do is to calculate the monthly payment on \$1,000,000 @ 6% compounded monthly=\$5,995.51

2 - The easiest way to account for the \$50,000 that the ABC Co. wants to pay down on the principal, is to find the equivalent monthly payment @6% compounded monthly for a period of 12 months. You would enter \$50,000 under "fv", zero under "pv", 12 under "np", 0.005 under "ir" and you would press "pmt" =\$4,053.32

3 - Now, we can combine the regular payment in (1) above with the special payment in (2) above: \$5,995.51 + \$4,053.32 =\$10,048.83 - This is the new monthly payment that would be paid regularly until the entire mortgage is paid off.

4 - To figure out how long would it take to pay off the entire mortgage of \$1,000,000 using the new payment in (3) above, you would enter \$1,000.000 under "pv", zero under "fv", \$10,048.83 under "pmt", 0.005 under "ir" and press "np" =138 months, or 11.5 years to pay off this mortgage under this arrangement.

5 - Without \$50,000 being paid down on the principal, the original mortgage would have cost the ABC Co: 360 months x \$5,995.51 - \$1,000,000 =\$ 1,158,383.60 in interest. But with \$50,000 being applied to the principal each and every year, the new cost to the ABC Co. is: 138 x \$10,048.83 - \$1,000,000 =\$386,776.62 in interest. The difference in savings to the ABC Co. is: \$1,158,383.60 - \$386,776.62=\$771,606.98 - net savings in interest to the ABC Company. And that is the END!.

Nov 4, 2018
#2
+1

Thanks a lot for your help.

Nov 4, 2018