MEMO & EXCEL files needed (2 files needed on 1 case study)

MEMO

TO: Mark Sexton & Todd Story

FROM: Jane Doe

DATE: March 26, 2016

RE: Mortgage Options for S&S Air, Inc.

Thank you for meeting with Christie Vaughn to discuss the various mortgage options First

United National Bank can offer your business. This memo contains a detailed analysis of each

mortgage option that is available for S&S Air, Inc. along with a recommendation of which

option is best suited for your company’s needs.

Traditional Mortgages

First United Bank offers 20 year and 30 year traditional mortgages with an APR of 6.1%. Each

of these mortgages will be repaid in equal monthly installments. Based on your prior banking

relationship, there will be no closing costs for either of these loans. Table 1 details the monthly

payments and a 6 month amortization schedule for a 30 year traditional mortgage.

Table 1. 30 Year Traditional Mortgage

Loan Amortization 30 Year Traditional Mortgage Loan Amount Interest Rate Loan Term Loan Payment

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Month Beginning Balance Total

Payment Interest Paid Principal

Paid Ending Balance

1 $ 35,000,000.00 $212,098.17

$ 34,965,818.49

2 3 4 5 6

Totals

As you can see from this table, your monthly payments for a 30 year traditional mortgage will be

X. Your first payment will pay X the principal balance. The total cost for a 30 year mortgage is

depicted as follows:

Total cost of 30 Year Traditional Mortgage:

With a 30 year traditional mortgage, you will pay a total of X for the manufacturing facility.

The monthly payments for a 20 year traditional mortgage are than those for the 30 year mortgage

as shown in Table 2.

Table 2. 20 Year Traditional Mortgage Payment

[INSERT TABLE HERE]

Your monthly payments for a 20 year mortgage will be X. This payment is approximately X

more per month than the 30 year mortgage. However, the total cost of a 20 year traditional

mortgage is significantly than the 30 year as shown below.

Total Cost of 20 Year Traditional Mortgage:

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As you can see, there is an approximate X difference between the total cost of a 20 year and 30

year mortgage.

Smart Loan

With a smart loan, a mortgage payment is made every 2 weeks that is exactly one-half of the

traditional monthly mortgage payment. Like traditional mortgages, the APR is 6.1%. Assuming

30 year traditional mortgage payments, your biweekly payments for a smart loan are X. These

payments will pay off your mortgage in years as shown in Table 3.

Table 3. Smart Loan

This smart loan will be paid off approximately X than a traditional 30 year mortgage for two

reasons. First X . Second X. The interest of a smart loan compared to a traditional 30 year

mortgage is shown in Table 4.

Table 4. Smart Loan Interest Savings

Smart Loan Interest Savings Total 30 year mortgage payments Total Biweekly payments

Difference

Smart Loan Payment Present Value Payment per period Future Value Percent per period Number of periods Biweekly payoff years

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As you can see from the table, a smart loan will X in interest over the life of the loan compared

to a 30 year traditional mortgage. The total cost of a smart loan is as follows:

Bullet Loan

With a bullet loan, also known as a balloon loan, you would make traditional 30 year mortgage

payments for the first five years, but immediately after the 60th payment, the remaining principal

(bullet) of the loan is due in full. The remaining principal payment is calculated either using an

amortization table or the present value of the remaining 25 years of mortgage payments for the

30 year mortgage. Table 5 details the bullet loan.

Table 5. Bullet Loan

With a bullet loan, you would make monthly payments of X for five years with a bullet payment

of X due immediately after the 60th payment. The total cost of the bullet loan is shown below.

Total Cost of Bullet Loan:

Total Monthly Loan Payments

Bullet Payment

Total Cost of Smart Loan:

Bullet Loan Loan Amount Interest Rate Loan Term Loan Payment Bullet Payment

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The bullet loan so far offers your company the greatest interest savings especially compared to

the 30 year traditional mortgage.

Interest Only Loan

First United Bank also offers a 10 year interest only loan with an APR of 3.5%. With an interest

only loan, your company makes interest only payments on the loan amount borrowed, with no

principal payments required. After 10 years, the full $35,000,000 is due. Your company can

however, make principal payments at any time during the 10 year loan. If you do make a

principal payment, it would work just like a traditional mortgage where the principal payment

reduces the principal and the amount of interest due on the next payment. The monthly loan

payments for an interest only loan is shown on Table 6.

Table 6. Interest Only Payments

With an interest only loan, you will pay X per month for 10 years followed by a X payment for

the full amount that was borrowed. Over the life of an interest only loan, you will pay a total of

X as depicted below.

Total Cost of Interest Only loan: Total Monthly payments Principal Payment

Interest Only Loan Loan Amount Interest Rate Loan Term Loan Payment

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Recommendation

Based on my analysis of the various loans offered, I recommend X. This loan has the lowest total

cost over the course of the loan so it has the most interest savings for your company. The total

interest that is paid on the loan is X. However, there is a potential risk that your company X.

https://www.coursehero.com/file/27936516/DOcLoanpdf/

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