RE Finance Unit 15: Mathematics of RE Finance Flashcards
Add-On Rate
Method of computing interest whereby interest is charged on the entire principal amount for the specified term, regardless of any periodic repayments of principal that are made.
Amortization
The systematic repayment of a loan through periodic installments of principal and interest over the entire term of the loan agreement.
Annuity
A series of income payments or receipts over a period of years.
Balloon Payment
The final payment of a partially amortized loan that is considerably larger than the required periodic payments.
Breakeven Point
That point at which gross income equals fixed costs plus variable costs.
Built-Up Rate
Proportional approach to deriving overall capitalization.
Capitalization Rate
Method of estimating a property’s value by considering net annual income as a percentage of a reasonable rate of return on an investment. (Net income / Capitalization Rate = Property Value)
Compound Interest
Interest paid on the original principal and also on the accrued interest.
Discount
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.
Discounted Cash Flow
Present value of income stream.
Effective Rate
Actual interest rate paid on a loan regardless of the rate stipulated in the contract.
Fixed Costs
Regularly impacting operating expenses such as taxes, insurance, and maintenance.
Future Worth
The compounding increase in the value of money over time.
Interest
Money paid for the use of money.
Interest Factor (IF)
From a table, the numbers derived from formulas designed to indicate the present or future worth of money.
Interest Only
A term loan arrangement calling for payments of interest only, not including any amount for principal.
Loan Constant
Factor or multiplier used for the rapid computation of the annual payment needed to amortize a loan.
Nominal Rate
The interest rate stipulated in a contract.
Opportunity Cost
Earnings available on alternative investments.
Points
Amount of discount on a mortgage loan stated as a percentage; one point equals 1% of the face amount of the loan; a discount of one point raises the net yield on the loan by one-eighth of 1%
Premium
A fee paid for an insurance policy.
Present Worth
The discounted present-day value of money to be received in the future.
Return on Investment
Net annual income divided by cash investment equals a percentage return on the investment.
Simple Interest
Interest that is charged only on the principal amount outstanding.
