Real Estate Math Flashcards
Landlords base rents on what criteria?
- Rental market
- Type of property
- Geographic location.
What formula would you use to calculate profit (or loss) ?
Selling price minus Original cost
What formula would you use to calculate % of Profit ?
Profit divided by Original Cost
What formula would you use to calculate Profit Margin ?
*Profit margin is the percentage of selling price that turned into profit.
Profit divided by Selling Price
What formula would you use to calculate Simple Interest ?
Simple Interest = Principal (initial balance) x Interest Rate x Time (years)
David and his wife are getting a $175,000 loan at 8 percent and will pay 4 discount points. What will the effective interest rate be?
8.5%
Points are paid at closing and are equal to what?
1% of the loan amount
Which of the following methods do lenders use to compute the interest on the total amount of the loan for the entire loan term?
Add-on rate
If a lender charges two origination points on a $75,000 loan, how much would that cost the buyer?
$1,500
John is getting a $95,000 loan at 7.25 percent and will pay 4 discount points. What will the effective interest rate be?
4 points x 1/8 percent = 4/8 = .50 percent
7.25 + .50 = 7.75 percent
What is the purpose of Discount Points?
They are designed to offset any losses the lender might suffer when selling the loan to the secondary mortgage market.
What is the total simple interest due on the following loan amount, $12,500 at 5.5% for one year?
$12,500 x .055 x 1 = 687.50
What is the ratio between borrowed funds and the market value of the property being financed?
Loan-to-value
What ratio is calculated based on all of the monthly obligations the borrower has outstanding?
Debt Ratio
Which of the following procedures are used to compute the area of an irregular parcel or room?
divide the shape into regular rectangles, squares, or triangles; compute the area for each figure; then add the areas together to get the total area for the parcel.
How many square feet in an acre?
43,560
When closing on rental property, to do the monthly proration, rents are always paid when?
In advance
How is total commission calculated ?
By multiplying the sales prices by the rate of commission
How is commission rate calculated ?
By dividing the commission by the price
What are Points ?
One-time service charged by the lender to the borrower for making the loan.
What are the two types of Points ?
- Origination points
- Discount points
What are Origination points ?
The points charged by lenders as a means to recover some of the loan origination costs.
*In many cases, a loan officer’s compensation is based on the origination points.
What are Discount points ?
a means of raising the effective interest rate of the loan.
What does a loan-to-value ratio (LTV) do?
expresses the relationship between a property’s purchase price and its loan amount.
Profit margin
The percentage of the selling price that turns into profit.
Interest
- For a buyer: it is the amount paid in return for the use of money.
- For a lender: it is the money earned or received from a loan investment.
Simple interest
Money that is paid only for the amount of principal the borrower still owes.
Add-on interest
Interest calculated as a percentage of the original loan (principal) rather than on the balance due before each payment.
Compound interest
The interest computed on the principal amount plus accrued interest.
Loan to value ratio (LTV)
The relationship between a property’s purchase price and its loan amount.
Income ratio
Ratio of monthly mortgage payment as portion of monthly income
*Establishes the borrower’s capacity to pay the loan by limiting the percent of gross income they spend on housing costs.
Debt to income ratio
Ratio of the monthly debt payments as a portion of monthly income
*Used to determine the borrower’s capacity to repay the money they borrow.
Front foot
The measure of a property’s frontage on the road or highway or across the front of the property.
Proration
Process by which expenses prepaid or paid in arrears are divided between the parties at closing
