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
face amount of loan: $975,000

Up-front financing costs:_______

a. 2,494,500
b. $544,500
c. $505,000
d. $525,000

Answer 1

,Answer:

b. $544,500

Explanation:

For computing the required equity down payment on the property, first we need to find out the percentage of acquisition price which is shown below:

= Face amount of loan ÷ Acquisition price

= $975,000 ÷ $1,500,000

= 0.65 or 65%

Now the required equity down payment on 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

The 2 points is in percentage form