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Unformatted text preview: collected for the aforementioned or escrow's is the total amount due each year divided by 12. Because the borrower starts to build equity with the first month's payment, let us calculate the amount of principal reduction and the amount of the interest charges for the first three payments of a 30–year, fixed–rate, fixed–term loan. The deed of trust amount is $85,000; the interest rate is 8 percent. The first step is to calculate the monthly payment. This can be done using several methods: a payment book, a financial calculator, or the use of monthly payment factors. For this example, we are going to use the monthly payment factor. The monthly payment factor may be defined as an amount that is necessary to repay a loan of $1000 at a specific interest rate for a specific number of years. In this example we need the factor of a 30–year loan at 8 percent. In Appendix A, the monthly payment factors (MPF) are listed for 15–, 20–, 25–, and 30–year mortgages for interest rates from 7 to 17 percent. Find the proper interest rate of 8.125 percent in the first column, then go across the row under the proper heading that describes the term–30 years or 360 months in the far right column. The MPF is 7.4250. This means that we will repay the
9-2 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 9: FIXED RATE MORTGAGE AND ALTERNATIVE MORTGAGE INSTRUMENTS
loan at the rate of $7.4250 per $1000 borrowed. To calculate the monthly payment (P & I only), we would multiple the monthly payment factor (MPF) times the loan amount divided by 1000, or Monthly Payment = MPF x Loan Amount/1000 For our example we would then insert the proper numbers in the formula: $7.4250 x $85,000 / 1000 = $631.125 Thus, the monthly payment for P & I only would equal $631.125 or $631.13. Now let us calculate the amount of the first payment that will go to pay the interest charges and the amount of the payment that wi...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10