Residential Mortgage Calculations Flashcards
Formula : Equity
Current market value - Mortgage debt =Equity
Example : The current market Value of a home is $350,00. The owners have mortgage loan wit/h a principle of $280,900. How much equity do the homeowners have in their home?
$350,000 (market value) - $280,900 (loan) = $69,100 equity
PITI (Monthly Principal and Interests, Taxes, and Insurance Payments)
Example : Mortgage loan calls for monthly principal and interest payments of $2186.25. The lender requires the borrowers to pay property taxes and hazard insurance in advance. Calculate the borrowers PITI based on estimated annual property taxes of $2850 and annual hazard insurance of $1680.
Note: Monthly escrow payment for is one- twelfth of the annual expense for property taxes and the hazard insurance of 1680.00
$2850 (annual property taxes )/ 12 months = $237.50
$1680 (hazard insurance) / 12 = $140
$2186.25 (monthly principal and interest) + $237.50 + $140 = $2,563.75 (PITI)
Loan Origination Fee
Example: The lender is charging an origination fee of 1.5% on a new mortgage loan of $250,000. What is the cost of loan origination fee
$250,000 x 015 ( 1.5 %) = $3750 cost of loan origination fee
LOAN TO VALUE RATIO
Loan / sales price (or value) = loan to value ratio (LTV)
Example : A purchaser secured a mortgage loan of $180,000. The home was purchased for $200,00. What is the LTV?
$180,00 / $200,00 = .90 or 90 % LTV
A home was purchased with a down payment of $60,000 and a loan of $240,00. What is the LTV? Notice this time the amount and down payment are given. Before the LTV ratio can be calculated, the purchase price must be determined.
$240,000 + $60,000 (down payment) = $300,000 total purchase price
$240,000 loan amount / 300,000 purchase price = .80 or 80% LTV
Example : A home was purchased with a down payment of $36,000 and a loan of $200,00 at 6.5% for 30 years. Monthly payments are $1264.14. What is the LTV? Notice this time the monthly payment and loan term are given. This is extra information that is not needed to solve this question. however it can make things seem complicated. When solving a math question, always look for the key information before starting to do the calculation.
$200,000 + $36,000 down payment = $236,000 total purchase price
$200,000 loan amount / $236,000 purchase price = 8475 or 85 % LTV
Discount points Calculations - Based on the loan amount not the selling price. (Each point is equal to 1% of the loan amount).
Example : A lender charges 3 points on a $200,00 loan. Each discount point is equal to 1% of the loan amount. Therefore, 3 points is 3% of the loan amount. How much will the buyer pay for the discount points?
$200,00 loan amount x 0.3 = $6,000 cost points. When the lender receives the 6000.00 only 194,000 is needed from the lenders funds to make up the total of 2000.00 that is loaned to the borrower.
However the lender will receive the interest based on the $2000.00 during the full term of the loan. The real yield to a lender includes not only this interest but also the 6,000 paid as a mortgage discount
Example :Buyers purchased their home for 350,000. The buyers financed the purchase with 80% conventional loan. The mortgage charged 2.5 points. Calculate the actual cost in dollars of the points.. Discounts points are paid on the loan amount, therefore begin by calculating the amount of the loan. Each point is equivalent to 1% of the loan amount, so multiplying the loan amount by 2.5% or .025
350,000 purchase price x .80 LTV = 280,000 loan amount
280,000 x .025 = 7,000 cost of points
Lenders use computers or prepared tables to determine the number of discount points that must be paid. However as a general rule of thumb, each discount point paid to the lender will increase the lenders yield (rate of return) by approximately 1/8 of 1 % (.00125). When calculating yield, it is recommended, to first convert, from fractions to decimals so that the math can easily be solved with a calculator :
1/8 is the same as taking 1/ 8 = 1.25
Multiply the number of discount points by .125 to determine the increase in yield.
Example : A buyer obtains a mortgage of $180,000 and the lender agrees to make the loan at 6% interest plus 2 points. How much will the 2 discount points increase the lenders yield?
2 points x 1.25 = .25 %
charging 2 discounts increases the lenders yield by .25 %
the approximate yield is also called effective yield( borrower paying over entire term of loan)
Example : 6 % stated interest rate - .25% increase in yield from the discount points = 6.25 % approximate effective yield.
