Real Estate Principles 3rd Edition by David Ling,Wayne Archer

Exercise 18

You have decided to purchase an industrial warehouse. The purchase price is $1 million and you expect to hold the property for five years. You have narrowed your choice of debt financing packages to the following two alternatives:
• $700,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments (the annual payment will not include any amortization of principal), and $50,000 in up-front financing costs.
• $750,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments. No up-front financing costs.
What is the difference in the present value of these two loan alternatives Assume the appropriate discount rate is 6 percent.