Financial Calculations Flashcards
The “periodic rate” is also known by what other name?
Nominal rate
What is the periodic rate?
It’s the amount of interest that a borrower will pay on a monthly basis.
What is the equation to calculate the periodic rate?
(Annual Rate) / (12) = (periodic rate)
What is the calculation to determine the compounded interest on the monthly payment?
(periodic rate) x (loan amount) = (periodic interest)
What does interest “per diem” mean?
Interest per day
How is monthly PMI calculated?
(loan amount) x (Insurance rate) = (annual PMI)
(Annual PMI) / (12) = Monthly PMI
When does CLTV apply as opposed to LTV?
It is used when there are more than one loan being taken out at the same time. It adds the two together to “combine” their LTV with the lesser of the appraisal or purchase price.
How do you calculate the housing ratio or (front-end ratio)?
Combine all fixed monthly housing expenses and divide that number by the borrowers monthly income.
Between the front-end and back-end ratios, which one is more defining as to whether a borrower would more likely default on their loan or not?
The back-end ratio.
How do you calculate the back-end ratio?
Combine all debts that are to be paid longer than 10 months and divide that by the total monthly income.
When involving credit card debt, fannie mae and freddie mac use what percent of the total credit card debt to come up with the minimum monthly payment?
5% of the total credit card debt amount
For ARM’s, interest rate adjustment is the combination of what two numbers?
The new “index rate” based on the change of the index, and the “margin” set by the creditor. The margin always stays the same while the index rate will constantly change.
