chapter 16 ravi Flashcards
what is vendor - supplied (take back) mortgage:
- used when purchasers cannon get conventional financing
- the vendor acts as a lender
- when the financing is below the current market rate, the offer is worth less than the stated offer price
vendor (veronica) wants to sell her house for $500,000. bob offers to buy at full price with $100,000 down payment and $400,000 vendor supplied mortgage with monthly payments.
bob is asking a loan of $400,000 from the vendor at j12 = 6.5% (25 years amortization period). determine the market value of the loan and the market value of the offer if the market interest rate at banks is j12 = 8.5%
j12 = 6.5% N = 25 years (300 months) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ PV PMT FV $400,000 ? $0
= -$2,700.83
next we draw another timeline diagram…..
market interest rate j12 = 8.5%
n = 25 years (300 months)
_____________________________
new PV PMT FV
? $-2700.83 $0
note- the new PV is the market value of the loan
my guess $335,412.21
correct answer = $335,412.21!!
market value of loan = new PV = $335,412.22
market value of the offer = New PV + Down payment (DP)
= $335,412.22 + $100,000
= $435,412
vendor (veronica) wants to sell her house for $500,000. bob offers to buy at full price with $100,000 down payment and $400,000 vendor supplied mortgage with monthly payments.
bob is asking a loan of $400,000 from the vendor at j12 = 6.5% (25 years amortization period) veronica says this loan will be for a 1 year period.
determine the market value of the loan and the market value of the offer if the market interest rate at td bank for a 1 year period is j12 = 7.0%
j12 = 6.5 N = 12 X 25 =
________________________________________
pv pmt osb12 fv
$0 ? $400,000
osb = oustanding balance (after 12 payments)
ok, so the thing that is throwing me off in this one is “veronica says this loan will be for 1 year”
-so ravi says- remember, the 1 year term has nothing to do with the payment. it does not affect how much the payment will be.
pmt = -2,700.82
to find the OSB 12 pay close attention
-2,700.83 (remember to press - because it is a payment) PMT
1 INPUT
12 ↴
FV (AMORT)
= (first = sign is the principle) -6,604.41
= (second = sign is the interest) -25,805.54
= (thirst = is the balance) $393,395.58 which is the OSB
need to put this one a cue card for sure ↑
now, find the value of the loan if it was for only 1 year
in order to do this, you have to pull both values
PMT -$2,700.83
OSB12 $-393,395.59
market rate j12 = 7.0%
N = 12
___________________________ ___ X ___X ____X
New PV PMT FV = OSB12
? -2,700.83 -393,395.59
= $398,088.03
market value of the loan = New PV = $398,088.04
market value of offer = new PV + DP = $398,088.04 + $100,000
=$498,088.04 (this is what the house is selling for, according to the market!!!)
remember, do NOT let the down payment confuse you, don’t put it in the diagram, you add it
afterwards to get the total market value
vendor (Veronica) wants to sell her house for $500,000. bob offers to buy at full price with $100,000 down payment and $400,000 vendor supplied mortgage with monthly payments .
bob is asking a loan of $400,000 from the vendor at j12 = 6.5% (25 year amortization period). Veronica says this loan will be for a 2 year period.
Determine the market value of the loan and the market value of the offer if the market interest rate at TD bank for a 2 year period is j2 = 7.5%
J2 = 6.5% N = 25 years (300 months)
_______________________________________
PV PMT OSB24 FV
$400,000 $-2700.83 $-386,348.86 $0
2 ↴ PMT 6.5% ↴ I/YR ↴ PV 12 ↴ PMT ↴ I/YR
= 6.41
then, now that you got J12 = 6.41…
J12 = 6.5% N = 25 years (300 months)
_______________________________________
PV PMT OSB24 FV
$400,000 $-2700.83 $-386,348.86 $0
ok, so this is confusing because there is 3 values, i need to understand how do we get the FV when it looks like this!!!! the OSB and FV are throwing me off here.
sooo, basically, the idea here is that we weren’t supposed to know what the PMT and OSB24 so the first thing we would do is get the PMT(-$2700.83)
key thing here, first, you OVERRIDE the payment but pressing -2700.83 (-) PMT next, to get the OSB24 you go 1 INPUT 24 ↴ FV (AMORT) = 13,651.13 (first two years principle) =-51,168.78 (first two years interest) = 386,348.86 ( balance after 2 years)
thing that confuses me, how do i know that these are the figures after two years, where is that coming from???
is this why he put 1 before the input???? judging by the recent question, I’m going to say no.
ok, so ravi says, instead of putting 1 INPUT, you can put 24 INPUT which will show you the
principle, interest and balance after 24 payments
=-604.83 (principle of 24th payment)
=-2,095.99 (interest of 24th payment)
=386,348.86 (balance after 24 payments)
** might need to watch chapter 16 again in super slow motion**
for the j12 = 7.5%
N = 24
________________________________ X ___ X ___
PV PMT FV = OSB12
? $2700.83 $-386,348.86
PV
$392,707.80
market value of loan = new PV = PV $392,707.80
market value of offer = New PV + DP = $392,707.80 + $100,000
$492,707.80
ok ravi might have cleared something up for me, where it says X and X on the diagram, he points out, this is not applicable, so perhaps dont let it confuse us!!
vendor (Veronica) wants to sell her house for $500,000. bob offers to buy at full price with $100,000 down payment and $400,000 vendor supplied mortgage with monthly payments .
bob is asking a loan of $400,000 from the vendor at j12 = 6.5% (25 year amortization period). Veronica says this loan will be for a 2 year period.
Determine the market value of the loan and the market value of the offer if the market interest rate at TD bank for a 2 year period is j12 = 7.5%
J12 = 6.5% N = 25 years (300 months)
_______________________________________
PV PMT OSB24 FV
$400,000 $-2700.83 $-386,348.86 $0
ok, so this is confusing because there is 3 values, i need to understand how do we get the FV when it looks like this!!!! the OSB and FV are throwing me off here.
sooo, basically, the idea here is that we weren’t supposed to know what the PMT and OSB24 so the first thing we would do is get the PMT(-$2700.83)
key thing here, first, you OVERRIDE the payment but pressing -2700.83 (-) PMT next, to get the OSB24 you go 1 INPUT 24 ↴ FV (AMORT) = 13,651.13 (first two years principle) =-51,168.78 (first two years interest) = 386,348.86 ( balance after 2 years)
thing that confuses me, how do i know that these are the figures after two years, where is that coming from???
is this why he put 1 before the input???? judging by the recent question, I’m going to say no.
ok, so ravi says, instead of putting 1 INPUT, you can put 24 INPUT which will show you the
principle, interest and balance after 24 payments
=-604.83 (principle of 24th payment)
=-2,095.99 (interest of 24th payment)
=386,348.86 (balance after 24 payments)
** might need to watch chapter 16 again in super slow motion**
for the j12 = 7.5%
N = 24
________________________________ X ___ X ___
PV PMT FV = OSB12
? $2700.83 $-386,348.86
PV
$392,707.80
market value of loan = new PV = PV $392,707.80
market value of offer = New PV + DP = $392,707.80 + $100,000
$492,707.80
ok ravi might have cleared something up for me, where it says X and X on the diagram, he points out, this is not applicable, so perhaps dont let it confuse us!!
vendor Victor wants to sell his house for $500,000
betty offers to buy for $400,000 with $60,000 down payment and vendor supplied mortgage with monthly payments ( to the next dollar) at j2 = 6.5% (25 years amortization period) with a 3 year term.
Determine the market value of the loan and the market value of the offer if the market interest rate at TD bank for 3 year period is J2 = 7.0%
correct way….
j2 = 6.5% N = 25years (300 months)
___________________________________
PV PMT OSB36 FV
$400,000 ? ? $0
PMT = -2,679.29
then go..
-2679.29 ↴ PMT 1 INPUT 36 ↴ AMORT = = =378,543.27 is the balance
notice- we did not remember to put the OSB36 on the timeline like above, need to remember that!!
remember, you can also do 36 INPUT ↴ AMORT = = =378,543.27 same thing, intact, i think this way is easier??
now for the next part-
determine the market vale of the loan, and the market value of the offer if the market interest
rate at TD bank for a 3-year period is J2 = 7.0%
market rate J2 = 7.0% (after conversion = 6.9)
N = 36
____________________________3 year_X-X-X
PV PMT OSB36
? $-2,680 $-378,543.28
so we are basically doing the same thing again, but looking for the PV which is the market value
PV = 394,869.52
market value of the loan = new pv = $394,869.52
market value of offer = new PV + DP = 394,869.52 + $60,000
= $454,869.52
if payment is -2,700.83
how do you find OSB12 (outstanding balance)
-2,700.83 PMT
1 input
12 ↴
FV (AMORTIZATION)
1st = sign = principal -6,604.41 2nd = sign = interest - 25,805.54 3rd = sign = balance 393,395.58
convert j2 = 4% to j12
2 ↴ P/YR 2 Stated compounding frequency
4 NOM% 4 Stated nominal rate
↴EFF% 4.04 Equivalent effective annual rate
12 ↴ P/YR 12 Desired compounding frequency
↴ NOM% 3.967068 Equivalent j12 rate
what is the difference between the market value of a loan and the market value of an offer?
for the market value of offer, you have to add the market value of the loan plus the down payment
if the question talks about a guy making an offer on a property, and then they are asking you about the market value of the loan and the market value of the offer, what is the first things you need to do
plug in the variables (excluding) the down payment
then, when you get the payment and perhaps the OSB
you do another diagram, using the outputs and find out the market value of the offer and this is where you have to add the down payment
convert j2 = 6.5 to j12
2 ↴ PMT 6.5 I/YR ↴ PV 12 ↴ PMT ↴ I/YR = 6.41
what is the difference between no term and term
with no term the FV = 0
with term, you have to determine the payment and the OSB then, you have to determine the market value of the offer.
