Appendix HOW TO USE THE CONSTANT TABLES

Question 1

What is the purpose of the financial tables provided?

Answer 1

To assist in problem solving for mortgage financing without complicated calculators.

Question 2

How many basic factors are there in mortgage problem solving?

Answer 2

Seven basic factors.

Question 3

List the seven basic factors in mortgage problem solving.

Answer 3

• Time allowed
• Contract rate
• Contract principal
• Constant payment percent
• Actual payment
• Early repayment
• Mortgage holder’s actual yield

Question 4

What does ‘Time Allowed’ refer to in mortgage financing?

Answer 4

The period set for the repayment of the debt.

Question 5

What is the ‘Contract Principal’?

Answer 5

The amount of money borrowed at the creation of the loan.

Question 6

What is a ‘balloon payment mortgage’?

Answer 6

A mortgage with a repayment schedule longer than the actual payoff date.

Question 7

How does the number of payments affect the monthly payment amount?

Answer 7

A greater number of payments will cause a lower monthly payment.

Question 8

In a 20-year mortgage, how is the monthly principal payment calculated?

Answer 8

By dividing the contract principal by the total number of payments (240 months).

Question 9

What is a ‘constant payment mortgage’?

Answer 9

A loan where the monthly payment is a set amount for the time allotted.

Question 10

What three factors are considered in calculating the actual payment amount?

Answer 10

• Time allowed
• Original contract principal
• Contract rate

Question 11

What is the ‘Contract Rate’?

Answer 11

The interest rate used to calculate the payment.

Question 12

True or False: The contract rate is always the same as the actual interest charged.

Answer 12

False.

Question 13

How is the monthly interest rate calculated from an annual contract rate?

Answer 13

By dividing the annual rate by 12.

Question 14

What happens to the principal owed in a mortgage with reduced payments in early years?

Answer 14

The principal owed increases as unpaid interest is added back to the balance.

Question 15

What can cause hardships in later years of a mortgage?

Answer 15

Changes in interest rates or balloon payments coming due.

Question 16

What is the ‘Contract Principal’ at the start of the loan process?

Answer 16

The initial amount of the loan.

Question 17

Fill in the blank: The formula for calculating compound interest is ______.

Answer 17

Contract principal (1 + Contract rate)^n.

Question 18

What does the variable ‘n’ represent in the compound interest formula?

Answer 18

The number of periods.

Question 19

How does compounding frequency affect the total payoff amount?

Answer 19

More frequent compounding results in a greater end result.

Question 20

What is the ‘Constant Payment Percent’?

Answer 20

A percentage of the principal remaining that results in a combined principal and interest repayment.

Question 21

True or False: The constant payment percent is the same for all loans.

Answer 21

False.

Question 22

What is the significance of the constant payment percent in mortgage repayment?

Answer 22

It helps determine the repayment amount based on the remaining balance.

Question 23

What is the constant payment percentage for an 18-year mortgage at 12 percent?

Answer 23

13.583 percent

This percentage is used to calculate the annual total of monthly payments.

Question 24

How do you calculate the monthly payment from the annual total?

Answer 24

Divide the annual total by 12.

Question 25

What is the principal amount assumed in the example calculation?

Answer 25

$50,000.

Question 26

What is the annual total payment for a principal of $50,000 at 12 percent?

Answer 26

$6,791.50.

Question 27

True or False: Most amortization tables provide monthly payment amounts.

Answer 27

True.

Question 28

What is the total annual payment if the monthly payment is $428.34?

Answer 28

$5,140.03.

Question 29

If a mortgage has a monthly payment of $1,428.50 and $150,000 principal remaining, what is the first step to find the interest rate?

Answer 29

Convert the payment to an annual total by multiplying by 12.

Question 30

What is the constant rate for a mortgage with a monthly payment of $1,428.50 and $150,000 principal?

Answer 30

11.428.

Question 31

What is the formula to find the contract principal using total annual payment and constant rate?

Answer 31

Total annual payment divided by Constant rate.

Question 32

What does Table A represent?

Answer 32

Monthly payment percentages for amortizing mortgages.

Question 33

What does Table B represent?

Answer 33

Annual payment percentages for amortizing mortgages.

Question 34

Fill in the blank: The actual payment can be _______.

Answer 34

[monthly, quarterly, semiannually, or annually].

Question 35

What is early repayment in the context of mortgages?

Answer 35

Paying off the mortgage before the scheduled end of the term.

Question 36

What is a potential benefit of early repayment for investors?

Answer 36

It can generate immediate cash from the sale of mortgage holdings.

Question 37

What is a balloon payment?

Answer 37

A large final payment due at the end of a loan term.

Question 38

In the example, what is the principal amount of the second mortgage taken back by Able?

Answer 38

$500,000.

Question 39

What is the constant rate for a 20-year mortgage at 8 percent?

Answer 39

10.037 percent.

Question 40

What is the annual payment of the second mortgage calculated in the example?

Answer 40

$50,185.00.

Question 41

What is the yield achieved from the mortgage investment if it is sold at a discount?

Answer 41

22.34%.

Question 42

What happens to the yield if the borrower fails to meet obligations?

Answer 42

The yield could slip into the negative.

Question 43

What is the critical factor to consider when investing in mortgages?

Answer 43

Understanding the mortgage, borrower, and property condition.

Question 44

What is the monthly payment for a loan of $100,000 at 12 percent over 25 years?

Answer 44

$1,053.25.

Question 45

How is the monthly payment calculated using a constant rate?

Answer 45

Multiply the gross loan outstanding by the constant rate, then divide by 12.

Question 46

What does the term 'amortizing mortgage' refer to?

Answer 46

A mortgage where the monthly payment remains the same throughout the term.

Question 47

What percentage is used to represent the monthly payment when using the amortization tables?

Answer 47

The constant rate.

Question 48

How should you place the decimal point when calculating percentages?

Answer 48

Move the decimal point two places to the left.

Question 49

What should you do when using Table A to find monthly payments?

Answer 49

Divide the annual payment by 12

Question 50

When performing a percentage calculation, where should you move the decimal point?

Answer 50

Two places to the left

Question 51

How do you check your calculator for accuracy?

Answer 51

Multiply $100,000 by 0.12639 and verify the result

Question 52

What is the constant rate for a 30-year mortgage at 15 percent interest?

Answer 52

15.173

Question 53

What is the formula to find the interest rate when the term and payment are known?

Answer 53

Annual payment divided by loan amount owed

Question 54

If the annual payment is $9,669.60 and the loan amount is $80,000, what is the result of the calculation?

Answer 54

0.12087

Question 55

What is the next step after obtaining 0.12087 in the interest rate calculation?

Answer 55

Move the decimal over two places to the right

Question 56

How do you find the mortgage amount when term, interest, and payment are known?

Answer 56

Get annual payment, find constant rate, divide annual payment by constant

Question 57

What is the annual payment for a mortgage with a monthly payment of $805?

Answer 57

$9,660.00

Question 58

What constant rate corresponds to a 10.5 percent interest rate for a 20-year mortgage?

Answer 58

11.670 percent

Question 59

How do you find the term of years when you know the amount owed, interest rate, and payment?

Answer 59

Calculate annual payment, divide by loan amount owed, adjust decimal

Question 60

What is the annual payment for a mortgage with a monthly payment of $970?

Answer 60

$11,640

Question 61

What is the discount percentage when selling a mortgage?

Answer 61

Divide the price of the mortgage by the face amount owed

Question 62

What constant rate corresponds to a 10 percent interest rate for a 10-year mortgage?

Answer 62

15.858 percent

Question 63

How do you calculate the discount needed for a mortgage?

Answer 63

Divide existing constant by desired constant and move decimal

Question 64

What is the price a buyer would pay for a $50,000 mortgage at a discount of 81.97 percent?

Answer 64

$40,985

Question 65

How do you find the new yield of a discounted mortgage?

Answer 65

Divide the constant rate by the discount percentage

Question 66

What is the constant at the contract rate for a $35,000 mortgage at 11 percent interest?

Answer 66

22.841 percent

Question 67

If you pay $25,000 for a $35,000 mortgage, what is the discount percentage?

Answer 67

71.43 percent

Question 68

What is the average yield earned if the return is $13,634.60 on a $25,000 mortgage?

Answer 68

54.54 percent

Question 69

What happens if mortgages calculated are less than annual payments?

Answer 69

Slight errors will occur, but it won't warrant not using the table

Question 70

What does a constant annual payment percentage represent?

Answer 70

The percentage that when multiplied by the loan balance gives the annual payment