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: 2 points.

Question

Quizplus · Accepted Answer

First, we need to calculate the upfront financing costs, which are 2% of the face amount of the loan:

Upfront financing costs = 2% x $975,000 = $19,500

Next, we need to calculate the net loan proceeds, which is the face amount of the loan minus the upfront financing costs:

Net loan proceeds = $975,000 - $19,500 = $955,500

Finally, we can calculate the required equity down payment by subtracting the net loan proceeds from the acquisition price:

Required equity down payment = $1,500,000 - $955,500 = $544,500

Therefore, the correct answer is C.

When a Mortgage Loan Is Obtained, the Cash Down Payment