---
title: "Loan value against mortgage of a building"
subject: "Construction Management"
chapter: 13
key: "semester_8/construction_management:value-building-mortgage-loan-2073"
source: https://www.bctengineer.com/q/semester_8/construction_management/value-building-mortgage-loan-2073
site: BCT Engineering
---

# Loan value against mortgage of a building

Construction Management · Chapter 13: Valuation

- Asked in: 2073 Magh, 6 marks
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/value-building-mortgage-loan-2073
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-13

## Question

A building having a cubic content of 1500 $m^3$ was constructed 15 years ago on a free hold land measuring 1000 $m^2$. The building fetched a rent of Rs.12000 per month. What amount will you recommend for advancing a loan on a property against the Mortgage, if the rate of land in that area is Rs. 700 per sq meter? The building has following expenditure headings: Insurance premium Rs. 6000 per annum; Repair and maintenance 8% of gross rent; Taxes 25% of gross rent; Management collection charges 5% of gross rent; Redemption of capital is 5%.

## Short answer

Assume 8% interest, remaining life 45 years, and two-thirds loan-to-value. Net income Rs83,280, land interest Rs56,000, building income Rs27,280; dual-rate YP 11.593 gives building Rs3,16,247 plus land Rs7,00,000, property Rs10,16,247. Recommended loan Rs6,77,498.

## Answer

**Assumptions** (not given in the question): rate of interest on capital = 8%; the redemption of capital is by a sinking fund at 5%; total life of the building = 60 years, so the remaining life = 60 − 15 = 45 years. For a loan on mortgage, a bank normally advances about two-thirds (66.7%) of the value.

**Annual income**

$$
\text{Gross rent} = 12{,}000 \times 12 = Rs\ 1{,}44{,}000
$$

**Outgoings**
- Insurance = Rs 6,000
- Repair and maintenance 8% = Rs 11,520
- Taxes 25% = Rs 36,000
- Management 5% = Rs 7,200
- Total = Rs 60,720

**Net income** = 1,44,000 − 60,720 = Rs 83,280

**Land:** 1000 × 700 = Rs 7,00,000; interest at 8% = Rs 56,000
**Net income from building** = 83,280 − 56,000 = Rs 27,280

**Year's purchase** (8%, sinking fund 5%, 45 years):

$$
YP = \frac{1}{0.08 + \dfrac{0.05}{(1.05)^{45}-1}} = 11.593
$$

**Value of building** = 27,280 × 11.593 = Rs 3,16,247
**Value of property** = 3,16,247 + 7,00,000 = Rs 10,16,247

**Loan to be advanced** (two-thirds) = 2/3 × 10,16,247 = Rs 6,77,498

**Answer: Value of the property is about Rs 10.16 lakh, and a loan of about Rs 6.77 lakh may be recommended.**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. With an assumed total life of 60 years and building age of 15 years, what life is used for the YP?
   A. 60 years
   B. 75 years
   C. 15 years
   D. 45 years
   Answer: D. Remaining life = 60 - 15 = 45 years. (Key point: Remaining life)

2. Net income is Rs 83,280 and land interest at 8% of Rs 7,00,000 is Rs 56,000. What income is capitalised for the building?
   A. Rs 83,280
   B. Rs 27,280
   C. Rs 1,39,280
   D. Rs 56,000
   Answer: B. 83,280 - 56,000 = Rs 27,280, since land is not redeemed. (Key point: Net income from building)

3. Which expression gives YP for 8% interest, 5% sinking fund, 45 years?
   A. 1 / (0.08 + 0.05)
   B. 1 / 0.08
   C. 1 / (0.08 + 0.05/((1.05)^45 - 1))
   D. 1 / (0.05 + 0.08/((1.08)^45 - 1))
   Answer: C. Redemption at 5% gives sinking fund factor 0.05/((1.05)^45 - 1), added to the 8% interest; YP = 11.593. (Key point: Dual-rate YP)

## Related in Construction Management

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- [Value of a 20-year-old building](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-20-years-2075) — Construction Management, chapter 13, asked 2×
- [Valuation of a cinema hall (land Rs 15 lakh)](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-cinema-hall-2077) — Construction Management, chapter 13, asked 2×
- [Capitalized value of three-storied RCC building](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-three-storey-rcc-2079) — Construction Management, chapter 13
- [Capitalized value of 80-year building](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-80-years-2078) — Construction Management, chapter 13

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