real interest rate after tax benefit

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lostinthenumbers

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I am offered a commercial real estate loan by two banks, A/B. Bank A is an existing Bank (offering a refinance) and B is a new bank. The amount bank A is offering is $10,000,000 and B is $10,200,000. Both terms are a 10 year fixed rate and 25 year amortizations. However, A is offering 4%, and B is offering 3.00%.

Issue:

If I pay off Bank A, there is a $200,000 pre payment penalty. That is why B is a higher dollar amount, but is offering a lower rate to offset the payment (not actual amounts to illustrate). The $200,000 is also "tax deductible" at my current 37% tax rate of the LLC I own if I pay-off with a new bank. How can I "estimate" what Bank B's "real interest rate" is, if I have a tax benefit over the other offer? Thank you for the complex question help.
 
lostinthenumbers said:
I am offered a commercial real estate loan by two banks, A/B. Bank A is an existing Bank (offering a refinance) and B is a new bank. The amount bank A is offering is $10,000,000 and B is $10,200,000. Both terms are a 10 year fixed rate and 25 year amortizations. However, A is offering 4%, and B is offering 3.00%.

Issue:

If I pay off Bank A, there is a $200,000 pre payment penalty. That is why B is a higher dollar amount, but is offering a lower rate to offset the payment (not actual amounts to illustrate). The $200,000 is also "tax deductible" at my current 37% tax rate of the LLC I own if I pay-off with a new bank. How can I "estimate" what Bank B's "real interest rate" is, if I have a tax benefit over the other offer? Thank you for the complex question help.
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Please follow the rules of posting at this forum, enunciated at:

https://www.freemathhelp.com/forum/threads/read-before-posting.109846/

Please share your work/thoughts and context of the problem (what is the subject topic?) - so that we know where to begin to help you.

I would start with calculating FV of these loans.
 
lostinthenumbers said:
I thought the question was rather explanatory.
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Mostly, but your response is not at all.

This line is confusing, "Both terms are a 10 year fixed rate and 25 year amortizations". Does this mean there is one 10 year and one 25 year or does it mean they're both 25 year variable rate with the first 10 years fixed and guaranteed? If the latter, you'll need to supply the terms of the variable agreement.

It is through long experience that I declare your disclaimer, "(not actual amounts to illustrate)", entirely unhelpful. There is no way to know that your example is actually useful. If you can't use real numbers because it would violate a confidentiality agreement with your client or employer, then you have a tougher problem.

In any case, we're here to help you with what you need help on. We cannot do that if you show us no work of your own.
 
So be it but what you’re really implying is that people who have no clue or where to begin are not eligible for help. And, both loans offered are 10 year loan terms at the implied rates.
 
lostinthenumbers said:
So be it but what you’re really implying is that people who have no clue or where to begin are not eligible for help. And, both loans offered are 10 year loan terms at the implied rates.
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If you really have no clue - we need to begin with definitions!

How would you define "amortizations"?

How would you define "pre payment penalty"?

What you are really saying is that - you do not want to even find the spoon, if somebody is available to spoon-feed you!
 
lostinthenumbers said:
So be it but what you’re really implying is that people who have no clue or where to begin are not eligible for help. And, both loans offered are 10 year loan terms at the implied rates.
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You can't have "no clue", unless you just walked into a class off the street and had no idea where you were going. Once, back in college, I got the wrong room number for an easy-credit gym class. I was looking for Wrestling and I seemed to be in Creative Dance. I certainly had "no clue" that day. I found the right room, later.

What does "25 year amortization" mean in this context? You've been introduced to quite a few words. Were you also provided any definitions?

Can you provide definitions?

Time Value of Money
Present Value
Future Value

You have to throw us a bone. We can't see into your brain. It's not a matter of eligibility. It's a matter of communication.
 
You guys have to be the most obnoxious pompous asses I have ever seen. Absolute bullies, here! DELETE THE THREAD AND MY PROFILE! CYA.
 
lostinthenumbers said:
You guys have to be the most obnoxious pompous asses I have ever seen …
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As a late friend would say, you're kinda like a guy who enters a soup kitchen, but, when asked to help out before dinner, demands the cooks stop doing things the way the kitchen works and provide a complete steak dinner, instead.

Moderators are unable to delete accounts; you'll need to do your own legwork. Send your requests to the site owner by email. (You'll find his address in the guidelines at the link that you were provided.)

\(\;\)
 
I resent that. Normally, I'm considered an arrogant pig. Anyway, I'm personally sorry that we weren't able to help you. If you wish to control the engagement, you should consider paying a local tutor.
 
tkhunny said:
Mostly, but your response is not at all.

This line is confusing, "Both terms are a 10 year fixed rate and 25 year amortizations". Does this mean there is one 10 year and one 25 year or does it mean they're both 25 year variable rate with the first 10 years fixed and guaranteed? If the latter, you'll need to supply the terms of the variable agreement.

It is through long experience that I declare your disclaimer, "(not actual amounts to illustrate)", entirely unhelpful. There is no way to know that your example is actually useful. If you can't use real numbers because it would violate a confidentiality agreement with your client or employer, then you have a tougher problem.

In any case, we're here to help you with what you need help on. We cannot do that if you show us no work of your own.
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Actually, this looks like bank legalese. I suspect that both loans have fixed interest rates with a term of ten years, but are not fully amortizing. They are amortized as though they are fixed-rate, self-amortizing loans with a term of twenty-five years loans and the same rate as the ten-year loans. We used to call them balloon loans. At the end of ten years, there is a substantial balance due, and the bank gets to decide whether to extend the loan and if so on what terms.

Banks like them because they have a relatively limited duration if their credit quality is good because effectively they are variable rate after ten years. If, however, credit quality deterioates, the bank has far better control than if it had written a loan with a longer term. (Hotel loans are far safer on this basis because if maintenance is skimped, you can effectively foreclose before deterioration in the physical plant is too severe.)

The idiot who asked this question is asking the wrong question. Basically, on one loan he is going to pay 400k p.a. pre-tax and on the other 306k p.a. pre-tax, for a pre-tax savings of 94k per year at a pre-tax cost of 200k. Roughly, a two-year payback. And he is worrying about computing a tax-adjusted interest rate on the assumption that he knows what earnings and tax rates will be over a ten-year planning horizon.

I seldom get customers this distracted from reality, but I love them.
 
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