real estate finance - full book (500 pgs)

# Simple and compound interest simple interest is the

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Unformatted text preview: is due at the end of the loan term. The dreaded “mortgage” of old– fashioned melodrama was a straight note. Example A borrows \$2,000 from B for a two–year period. The interest rate is 12% per annum, payable quarterly, with the entire principal due and payable at the end of the two– year term. Payments would be made as follows: 1st Year end 1st qtr. end 2nd qtr. end 3rd qtr. end 4th qtr. \$60 \$60 \$60 \$60 2nd Year end 1st qtr. end 2nd qtr. end 3rd qtr. end 4th qtr. \$60 \$60 \$60 \$2,060 (All interest and principal is paid in full.) NEGATIVE AMORTIZATION If the monthly payment is less than the amount due for the monthly interest, the amount of the deficiency is added to the principal debt. This circumstance is most likely to occur with an adjustable rate mortgage (ARM) with a payment cap. AMORTIZATION TABLE Amortization table is not a simple percentage calculation. It is normally derived from tables which summarize a complex arithmetic, or it can be calculated using a computer or calculator with amortization capacity. The amortization tables on next page give the numbers applicable to a \$1,000 loan at various interest rates and various times. A full book of amortization tables would give the figures for loans of different amounts, making the loan amount in the fourth variable. The four variables used in compiling the tables are loan amount, interest rate, loan term, and monthly payment. Below is the procedure for finding one factor when the other three are given. TO DETERMINE PAYMENT An \$11,000 loan is to be amortized over a period of 18 years with 14% interest. What would be the approximate monthly payment? Dynasty School (www.dynastySchool.com) 7-3 REAL ESTATE FINANCE Locate the term of the loan in the first vertical column, 18 years, then proceed across to the appropriate interest rate column (14%). The figure at the intersection (\$12.70) indicates the monthly payment per \$1,000 of loan. For a loan of \$11,000, multiply \$12.70 x 11 = \$139.70 per month (principal and interest). TO DETERMINE INTEREST RATE A \$10,000 loan is to be amortized over seven years with monthly payments of \$176.60. What is the annual interest rate? Find the monthly payment per \$1,000 by dividing the monthly payment of \$176.60 by 10 which equals \$17.66. Go down the column to 7 years, across to 17.66, and up to 12%. TO DETERMINE INTEREST PAID A \$14,000 loan is to be amortized over 20 years with equal monthly payments which included 13% interest. Approximately how much interest...
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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.

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