2 - Looking At the Players

2 - Looking At the Players - Oct 4 2011 Chapter 2 Advanced...

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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 1
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 2 Objectives of This Chapter 1. Familiarize the Student with the participants in the loan process. 2. Exemplify the importance of loans in real estate ownership 3. Make the student more familiar with loans, and positive manipulation of loans
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 3 Perspective of loans Generally we look at loans from only one perspective, the borrower’s perspective, that of getting a loan to purchase something. Loans have a much greater scope if we are going to understand the use of loans. Understand the use to maximize our business advantage and the advantage of our clients. We will look at loans at they really exist.
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 4 Three Perspectives of Loans Loans should be viewed, and thought of, from three different positions: 1.The position of the borrower 2.The position of the Arranger 3.The position of the Investor
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 5 The Borrower The Borrower is looking at the loan from the perspective of purchasing something, real property in this study, and paying for it over a period of time. The Borrower is interested in the amount of the payment, the interest rate on the payment and how quickly they can pay the loan off.
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 6 The Borrower is interested in; 1. Their ability to make the payments. 2. Their satisfaction with what the loan has helped them purchase. 3. Borrowers don’t understand interest rates. 4. Usually the borrower thinks a low interest rate is good, and a higher interest rate less desirable.
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 7 Borrower Page 3 The Borrower really has many interest rates working for them in any loan: 1.The face amount of the rate (Nominal Rate) 2.The after tax rate 3.The after inflation rate 4.The rate with all the points and fees (APR)
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 8 Borrower Page 3 The Face Rate or nominal rate is simply that rate on the face of the note. For example if we use an example of a $500,000 loan at 6% interest, amortized for 30 years, and payable in equal monthly installments of $2,997.75 per month. The face rate of the loan is the Nominal Rate, or Face Rate. We need to look at the After Tax Rate, or the after income tax rate. Be aware of the fact that the borrower is entitled to deducting the interest on the loan from their personal income taxes.
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Oct 4, 2011 Chapter 2 - Advanced Finance - Rooks 9 The borrower in California is entitled to deduct the interest they have paid on the loan from their income tax return. This generates a tax savings. If this tax savings is subtracted from the interest that will
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2 - Looking At the Players - Oct 4 2011 Chapter 2 Advanced...

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