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Unformatted text preview: ify the borrower. Year 2 is the note rate less 2 percent or, 10.00 – 2 = 8.00 Year 3 is the note rate less 1 percent or 10.00 – 1 = 9.00 The third step is to calculate the actual dollars that will be required to fund or to be impounded to supplement the borrower’s payment to the level required by the lender or $759.54. This amount may be calculated using two different methods. One method is sometimes referred to as the fast–and–dirty method. Using this method, we add up the Dynasty School (www.dynastySchool.com) 6-15 REAL ESTATE FINANCE
percent of buy–down each year, in this case 3 + 2 + 1 or a total of 6 percent. This amount is then multiplied by the loan amount of the loan amount is multiplied by each of the percentages. $86,550 X 3%= $86,550 X 2%= $86,550 X 1% = Total required $2596.50 $1731.00 $865.50 $5193.00 The second method used to calculate the buy–down funds is sometimes referred to as the actual cash method. With this method, the actual difference between the monthly payment made by the borrower and the monthly payment required by the lender is calculated for each year of the buy–down. This would be calculated as follows: Year 1 Interest rate paid by borrower:7.00 Monthly payment of borrower: $575.82 Monthly payment required by lender:$759.54 Difference between payments:$759.54 – $575.82 = $ 183.72X12 = $2204.64 Year 2 Interest rate paid by borrower:8.00 Monthly payment of borrower: $635.07 Monthly payment required by lender: $759.54 Difference between payments: $759.54 – $635.07= $124.4 X12 = $1493.64 Year 3 Interest rate paid by borrower:9.00 Monthly payment of borrower: $696.40 Monthly payment required by lender: $759.54 Difference between payments: $759.54 –$696.40 = $63.14 X12 = $757.68 Total funds required: $2204.64+$1 493.64+$757.68 = $4455.96 You will note there is a difference between the two figures of approximately $737.04. The supplier of the buy–down funds, therefore, would seek a lender that calculates the buy–down funds using the actual...
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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