You have contracted to purchase a $10,000,000 multi-family property with $2,000,000 cash down payment as equity and an $8,000,000 mortgage loan. Assume mortgage rates for this type of investment property are 8.50% fixed rate, fully amortized over 30 years, with monthly payments of interest and principal.

(1) Construct an amortization schedule showing interest and principal payments for each month of the thirty year term. Also show the outstanding loan balance (unpaid principal balance) at the end of each month. Graph the balance outstanding over time. If your holding period is only five years, how much will you still owe after 60 months? You may assume no unscheduled payments of principal occur prior to that time.

(2) Suppose another lender offers 8.00% interest, fixed rate, also amortized over 30 years with monthly payments of interest and principal, but with loan maturity in 10 years, i.e. after 120 payments. Develop a similar amortization schedule for this alternative loan structure then answer the following questions.

What would be the difference in monthly payments between the two options?

What would be the amount of the balloon payment in 10 years?

Under which loan option would you pay the more total dollars of interest? More total dollars of principal?