Question

Tiger-Farms wants to purchase a neighboring farm currently on the market. The negotiated selling price is $750,000; $250,000 down payment is made and borrow the remainder. Loaner appraisal is verified to be $750,000; $500,000 loan is considered between the lender and Tiger-Farms over 25 years. Interest rate on the loan is 9%. Calculate the loan-to-value ratio. Interpret the value of the ratio.

Answer 1

The loan-to-value ratio is 100%. This means that the loan is equal to the full appraised value of the property that Tiger-Farms wants to purchase.

Step-by-step explanation:

The loan-to-value ratio is calculated by dividing the loan amount by the appraised value of the property and multiplying by 100. In this case, the loan amount is $500,000 and the appraised value is also $500,000, so the loan-to-value ratio is (500,000 / 500,000) * 100 = 100%.

The loan-to-value ratio represents the percentage of the property's value that is being financed by the loan. In this case, the ratio is 100%, meaning that the loan is equal to the full appraised value of the property. This indicates that Tiger-Farms is borrowing the entire amount to purchase the neighboring farm.