Question

What is the Loan to Value if the loan amount is $8 million, income is $200,000 per month, the property value is $10 million and the monthly debt service is $150,000?

What is the Debt coverage ratio if the loan amount is $8 million, income is $200,000 per month, the property value is $10 million and the monthly debt service is $150,000?

Answer 1

Loan amount is $ 8 millions & property value is $ 10 millions.

Loan to value ratio = loan / value of the property *100.

= $ 8 millions / $ 10 millions *100

= 80%

The loan to value ratio is a financial term used by lender to express the ratio of a loan to the value of the property purchased.

The higher the loan to value ratio ,the riskier the loan is for a lender.

2. Debt coverage ratio is net operating income divided by debts service.

In given questions income per month is $ 200000.so, income per annum is = $ 200000 * 12 = $ 2400000.

Debts per month is $ 150000.

Debts per annum is = $ 150000 * 12 = $ 1800000.

So, debts coverage ratio = $ 2400000 / $ 1800000

= 1.333

The debts coverage ratio is used in banking to determined a company's ability to generate enough income in it's operations to cover the expenses of a debt.