The property's needed equity down payment is (B) $544,500.
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What is a down payment?</h3>
The term "down payment" (also known as a "deposit" in British English) refers to an initial, partial payment that is made upfront for the purchase of expensive goods or services like a home or car.
Typically, it is paid in cash or an equivalent at the time the transaction is completed.
The remaining payment must then be financed through a loan of some kind.
In fractional reserve banking systems, a down payment is primarily used to ensure that the lending institution has enough capital to produce money for loans and to collect some of the remaining loan balance in the event that a borrower defaults.
The equity down payment will be:
= Face amount of loan ÷ Acquisition price
= $975,000 ÷ $1,500,000
= 0.65 or 65%
The current necessary equity deposit for the property is:
= Acquisition price × (1 - percentage) + up-front financing cost × acquisition price × percentage of acquisition price
= $1,500,000 × (1 - 0.65) + 2% × $1,500,000 × 65%
= $525,000 + $19,500
= $544,500
Therefore, the property's needed equity down payment is (B) $544,500.
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Complete question:
When a mortgage loan is obtained, the cash down payment (equity) required at property acquisition is a function of the acquisition price and the net loan proceeds. Given the following information, determine the required equity down payment on the property.
Acquisition price: $1,500,000
the face amount of loan: $975,000
a. 2,494,500
b. $544,500
c. $505,000
d. $525,000
