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Unformatted text preview: will be earned by the lender? Determine the monthly amortization payment: down term of years to 20; across to the 13% interest rate column to $11.72, multiply 14 (thousands) x $11.72 = $164.08 per month. Determine the total interest paid: 20 years x 12 months = 240 payments made; 240 payments x 164.08 per month = $39,379.20. Total interest paid less amount of original loan equals the approximate interest earned ($39,379.20 – $14,000.00) = $25,379.20 Figure 7-1 Amortization Table 7-4 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 7: LOAN PAYMENTS & SECONDARY MARKETS Dynasty School (www.dynastySchool.com) 7-5 REAL ESTATE FINANCE 7-6 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 7: LOAN PAYMENTS & SECONDARY MARKETS LOAN COSTS
The largest and most obvious cost of a loan is interest. In addition to interest, a real estate loan will involve various administrative costs, deposits, and additional fees. INTEREST
Interest is money paid to a lender for use of the lender's money. It is usually defined as a percentage of the amount borrowed. SIMPLE AND COMPOUND INTEREST
Simple interest is the percentage charged on the unpaid principal. Compound interest is interest on principal and accrued interest. The nominal rate (percentage) is specified in the promissory note. Forces Influencing Interest Rates – Interest rates fluctuate depending upon demand and availability of the money supply and other factors. Interest rates are limited by law for some government programs. INTEREST CALCULATIONS
The formula for interest calculations is: Interest = Principal x Time x Rate or I = P x R x T Example:
How much interest will be paid in 2 years on a straight loan of $100,000 at 10% for 3 years? I = P x R x T = $100,000 x .10 x 2 = $20,000 Example:
What is the annual rate of interest on a straight note with a principal amount of $1,200 on which $240 interest has been paid over a 2 years? R = I / P x T = $240...
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- Spring '10