Finance 4713: Class Examples Electronic Device Policy DON T! Attendance Policy Expected and rewarded with up to Fifty Extra Credit Points Homework Policy Due by 10 AM lose 2 point per minute it is late until worth zero. Ten percent bonus if turned in by 10 AM on day after material is covered in class. Professional Development Minimums: 20 points REFD sponsored Events such as round table or site tour 20 points in Real Estate Related Service (example: Habitat for Humanity) 10 more points (can be more of the above) Grade Bump Must complete a 50 point portfolio of above events to qualify. Your group must be approved via email by Prof. Thomson unless it s one of the Professional Real Estate Groups the REFD program partners with, or Investment Society, or Forum of Finance. Must show you are a member and complete at least 3 events with this group, and earn 100 points for total portfolio. Must show proof of attendance at each event. Photo is expected. When a sign in sheet is available, take a photo of your sign in. FIN 4713 Class Examples Page 1 of 78
Course Syllabus Fall 2018 COURSE: FIN 4713 Mortgage Banking and Real Estate Finance INSTRUCTOR: Dr. Thomas Thomson OFFICE: BB 4.06.26 OFFICE HOURS: T H 3:45 5:15PM and by appointment, except Oct 23 and Nov 27 WWW Homepage: http://faculty.business.utsa.edu/tthomson EMAIL: thomas.thomson@utsa.edu PHONE: 458-5306 TEXTBOOK Ling, D.C. and W. R. Archer. 2018. Real Estate Principles: A Value Approach, 5 th edition. McGraw Hill. 666 p. (ISBN-13 978-0-07-783636-8) Other readings may also be assigned as announced in class. An HP 10bII+ is the recommended financial calculator. Any examples shown in class will use this calculator. If you choose to use another, it is your responsibility to learn to use it. LEARNING OBJECTIVES This course provides an overview and analysis of mortgage banking and real estate finance. Upon completion of this class you should understand the analytical issues of real estate finance including analysis of types of real estate loans and a broad overview of the secondary mortgage markets. You should understand how real estate lending is done. You will learn how to calculate the payments, amount to principal, amount to interest and remaining balances from a wide variety of mortgages and to measure the return to lender and the cost to borrower. You should understand the legal environment and the forms and instruments used in real estate finance. Guest speakers will present the current state of real estate lending. PREREQUISITES MGT 3003, FIN 3014,and FIN3433, or consent of instructor COURSE OUTLINE Week of Topics Reading (Chapters) Aug 21 Introduction; Amortization and Calculator use Handouts Aug 28 Mortgage Mechanics Handouts Sep 4 Fixed Rate Mortgages 15 Sep 11 Adjustable Rate Mortgages Handouts Sep 18 Other Mortgages Handouts Sep 25 Real Estate Finance Law 9 Oct 2 Exam 1 N/A Oct 9 Development Financing 23 Oct 16 Development Financing Pro forma 23 Oct 23 Commercial RE Mortgages 16 Oct 30 Residential Mortgage Types 10 Nov 6 Exam 2 Nov 13 Secondary Mortgage Markets 11 Nov 20 Mortgage Underwriting Recent Mortgage Form 11 Nov 27 Guest Speakers N/A Dec 4 Review (time permitting) N/A FIN 4713 Class Examples Page 2 of 78
EVALUATION Your success in this course will be measured using homework, professional development, two midterm examinations, and a comprehensive final exam. iclicker questions will be posted before and during class to determine your participation bonus points. With the exception of your financial calculator and icliker, this is an electronics free class. Students are not permitted to use a cellphone, tablet, laptop computer, or similar devices during class. Students using such devices will be docked iclicker bonus points for that day, and may be asked to leave. Homework will be received as a single pdf or an excel file for each assignment via Blackboard Learn, and it must be successfully submitted by 10 AM on the day noted on Blackboard. Homework that is not received by the cutoff time in Blackboard will be docked 2 points per minute until it receives the grade of zero). The course website (http://faculty.business.utsa.edu/tthomson/fin4713.htm) and Blackboard Learn provide additional details for earning a grade bump by participating in an approved professional association. The proposed exam dates are shown below. If you cannot be present at an exam, you must discuss your situation with the instructor before the scheduled exam date to determine if a makeup exam will be permitted; otherwise you will receive a grade of zero for that exam. Any revision announced in class supersedes the schedule below. The points which will be applied to the exams and other measures are: Item Points Date Chapters Homework 150 Ongoing N/A Participation Bonus 50 Daily N/A Prof Development 50 Ongoing N/A Exam 1 175 Oct 2 9,15 Exam 2 175 Nov 6 10, 16, 23 Final Exam 450 Dec 13 (12:30 PM) 9-11, 15, 16, 23 Though subject to a downward revision in cutoff scores (i.e. a curve ), grades will be assigned to the point achievements noted in the Table below. A+ 970-1000 B+ 870-899 C+ 770-799 D+ 670-699 A 930-969 B 830-869 C 730-769 D 630-669 A- 900-929 B- 800-829 C- 700-729 D- 600-629 Exams The proposed exam dates are noted above. The Chapters included on each exam will be announced during class. In addition to the text materials, exams will test materials covered in class by the instructor and guest lecturers. Unless revisions are announced in class, the exam dates will be as noted above. The exam questions will be taken from the end of chapter questions, online quizzes, homework, examples covered in class, presentations by guest speakers and assigned readings. The Final Exam will be comprehensive. To each exam bring a financial calculator, No 2 pencil, and a SCANTRON form. All exams and all your work on exams are the property of the instructor. You are encouraged to review your exams during office hours. Student Conduct in Class: Class Attendance: This class follows HOP 5.09 which can be found at: http://www.utsa.edu/hop/chapter5/5-9.html. Attendance at lecture is expected. All students are expected to exercise self-discipline and a respect for the rights of others at all times. Students acting in a disruptive manner will be asked to leave the classroom. All students are expected to uphold the UTSA Creed: http://www.utsa.edu/about/creed/, and the Student Code of Conduct, http://www.utsa.edu/infoguide/appendices/b.html. Any student suspected of participating in any academic dishonesty will be reported to Office of Student Judicial Affairs, and the Instructor will recommend an automatic F for the course grade. Full details on Common Syllabus Information, which this class adhers to, is provide at the following link; http://provost.utsa.edu/syllabus.asp Course Revisions: Any revisions to this syllabus will be announced in class. FIN 4713 Class Examples Page 3 of 78
Chapter 15: Introduction to Mortgage Mechanics Mortgage Interest Rate Periodic Mortgage Interest Rate Interest Due You borrowed $250,000 last month at 5 3/8%. How much interest is due now? What is your balance if you make a payment of $1500? FIN 4713 Class Examples Page 4 of 78
Mortgage Amortization What is mortgage amortization? For the following interest rates and payment amounts, compute the loan amortization. The note requires a minimum payment of $1800 per month, but the borrower is allowed to pay additional if desired. The note rate (APR) may change each month. Date Payment APR Int Due (APR/1200 Balt-1) Principal Paid (PMT Int) Balance (Balt-1 Print) Jan 1 0 250,000.00 Feb 1 1800.00 7.000% Mar 1 2000.00 7.500% Apr 1 1800.00 9.375% May 1 1900.00 7.125% What if the payment and the interest rate are the same each period? FIN 4713 Class Examples Page 5 of 78
Solving mortgage problems with a financial calculator Professor Thomson calculator notation FIN 4713 Class Examples Page 6 of 78
Solving for the mortgage payment on a FRM mortgage. What will your loan payment (PMT) be for a $270,000 loan at 6% amortized over a 15 year period For the previous example, how much principal and how much interest will be paid in the second year? What is your loan balance after 2 years? FIN 4713 Class Examples Page 7 of 78
Let s get some insight from solving a series of problems Unless stated otherwise, assume mortgage payments are made monthly. 1. Complete the following table, assuming monthly payments. Interest Rate Loan Amount Term (years) Monthly. Payment Yr 1 Interest. Amount Year 1 Principal 14% 180000 30 Balance after 1 Year. 7% 180000 30 3% 180000 30 14% 180000 15 7% 180000 15 3% 180000 15 FIN 4713 Class Examples Page 8 of 78
2. How much interest will you pay in the 14th year of a $105,000, 5.5%, 20-year mortgage? 3. How much will you pay into principal on a 7 5/8%, $155,000, 15 year mortgage in the final 3 years of the mortgage? Other ways to solve? FIN 4713 Class Examples Page 9 of 78
4. Compute the balance, at 13 3/4 years, on a $125,000, 6.75%, 20 year mortgage. 5. You need a loan of $175,000, but want to pay it off as soon as possible. For a 7.25% rate, and 30-year term, what will your required monthly payment be? If you choose to pay $1675 per month on this loan, how fast will you be able to pay if off? FIN 4713 Class Examples Page 10 of 78
6. With a graduated payment mortgage, your initial payments are too low to amortize your loan at the standard rate. Consider a $155,000, 8% interest rate mortgage with a required payment of $800 per month for the first year. How much interest is due in the first month? What will the balance be after the first year? How much will you have paid into interest in the first year? 7. You have acquired a $155,000 mortgage at 6.125%, for 30 years. If you make a quadruple payment on the first anniversary of the mortgage, and then make the required payments from then on, how many fewer mortgage payments will you make than if you just paid your required amount for the life of the loan? FIN 4713 Class Examples Page 11 of 78
8. A reset mortgage allows for one interest rate reset during the life of the loan. If you have a 3/17, the mortgage rate will be reset after 3 years, to fully amortize at the end of the original 20 year period (i.e. after 17 more years). For a 6 3/8%, $150,000, mortgage, compute the reset payment if the new rate resets to 8 5/8%. End of Quiz (i.e. you can now finish HW) FIN 4713 Class Examples Page 12 of 78
Example: What will your loan payment (P&I) be for a $270,000 loan at 6% amortized over a 15 year period How much will you pay into principal in the second year? How much will you pay into interest in the second year? What will you loan balance be at the end of the second year? FIN 4713 Class Examples Page 13 of 78
FRM Example: You have applied for a $200,000, 30 yr, FRM, at 4.75%, with three points in lender fees. What is your payment? How much do you pay in principal in the 14 th month? How much do you pay in interest in the 14 th month? What is your loan balance after your 14 th payment? How much do you pay in principal in the 4 th year? How much do you pay in interest in the 4 th year? What is your balance after 4 years? FIN 4713 Class Examples Page 14 of 78
Lender s Yield Holding for term of loan. You have applied for a $200,000, 30-year, FRM, at 4.75%, with three points in lender fees. What is Lender s Yield? What is a point? How do points affect Lender s Yield? What is the dollar amount of the points in this example? What are the net loan proceeds? Assuming you keep the loan 360 months, what is the lender s yield (as an APR)? FIN 4713 Class Examples Page 15 of 78
In words, what is the Cost to Borrower or Effective Borrower Cost (EBC)? You have applied for a $200,000, 30-year, FRM, at 4.75%, with three points in lender fees. This loan has 3 rd party charges of $1250 and you keep the loan for 30 years? What effective amount of upfront cash do you receive from this loan? Assuming you keep the loan 360 months, what is the EBC (as an APR)? How does the computation of EBC differ from the Lender s Yield computation? FIN 4713 Class Examples Page 16 of 78
FTLAPR computation for FRM. You have applied for a $200,000, 30-year, FRM, at 4.75%, with three points in lender fees. Note: FTLAPR assumes borrower keeps loan for its entire term. Must be accurate to 1/8%. What is the FTLAPR (to the closest 1/8%)? FIN 4713 Class Examples Page 17 of 78
Lender s Yield/EBC Early Payoff You have applied for a $200,000, 30 yr, FRM, at 4.75%, with three points in lender fees and $1250 in 3 rd party charges. Assuming you keep the loan 48 months, what is the lender s yield (as an APR)? Assuming you keep the loan 48 months, what is your EBC (as an APR)? What is the only input that changes in doing these computations? FIN 4713 Class Examples Page 18 of 78
What is a bullet (I/O) loan Bullet (I/O) Loan Example: You are purchasing an apartment building for 10,000,000 and have been approved for a 5-year bullet loan at 4.125% in the amount of 7,000,000? What is your monthly payment? How much will you repay at the end of 5 years? FIN 4713 Class Examples Page 19 of 78
What is a partially amortizing loan? Partially Amortizing Loan Example: You purchased a small shopping center for $5,000,000 and have obtained a 4.625% loan that amortizes over a 25-year period, with a balloon payment due on after 6 years. The loan amount is 3,000,000 What is your monthly payment? What is amount of your balloon payment? FIN 4713 Class Examples Page 20 of 78
Working backward to determine the points a lender must charge to achieve a desired yield. How many points must a lender charge on a 6%, 15-year note to achieve a yield of 6.5%? (Though the loan amount does not matter, assume a $100,000 loan for computations) A. Assume the borrower holds the note for the entire term B. Assume the borrower holds the note for 3-years FIN 4713 Class Examples Page 21 of 78
Example Effects of points on short term loans: Short term bullet loan with points. You are offered a bullet loan at Prime plus 3 for 6 months, with 3 points. Prime is currently at 4% and we will assume it will remain stable. What is your expected financing cost expressed as an EAR assuming you make monthly interest only payments and you draw the entire line at the start of the loan? FIN 4713 Class Examples Page 22 of 78
Example: Hybrid Loan: To buy your dream home you use a 3/12 reset loan that pays interest only (bullet loan) for the first 3 years, followed with a reset payment to amortize over the remaining 12 years. The loan amount is $180,000 at 6.5%, with 3 discount points (to the lender) and $950 in third party closing costs which the borrower must pay. What net amount does the lender disburse? What net amount do you as a borrower receive? What is your monthly payment during the first 3 years? What is your monthly payment during the remaining 12 years? What is the FTLAPR on this loan? What is your balance after 4 years If you repay this loan after 4 years, what is the effective yield for the lender? If you repay this loan after 4 years, what is the effective cost to you, the borrower? FIN 4713 Class Examples Page 23 of 78
What is a bankers year? Loan Payoff Mid-Month: On March 1, 2015 you took out a loan for $180,000 that was a 30-year FRM, with an interest rate of 5.25%. What would your loan payoff be on June 21, 2021? FIN 4713 Class Examples Page 24 of 78
ARM Example 1. You are seeking a loan for your $250,000 house and have determined that you would like to choose an ARM because you expect to keep the house for just 3 years. Assume you make a 20% down payment and pay 3 points. You will also incur $1350 in third party closing costs. What are your CF s, the yield to lender and cost to borrower? What do you pay each year in interest? Initial rate 3.25% Annual adjustments Tbill + 2.25% (rounded to 1/8%) No payment or interest rate caps Index, now at 4.21, then changes annually to: 3.67, 6.23, 8.33 FIN 4713 Class Examples Page 25 of 78
ARM Example 2. You are seeking a loan for your $250,000 house and have determined that you would like to choose an ARM because you expect to keep the house for just 3 years. Assume you make a 20% down payment and pay 2 points. What are your CF s and the yield to lender? What do you pay each year in interest? Initial rate 3.5% Annual adjustments Tbill + 2.75% (rounded to 1/8%) Max change of 2% per year interest rate Max interest of 5% above initial rate Index, now at 4.21, then changes annually to: 3.67, 6.23, 8.33 FIN 4713 Class Examples Page 26 of 78
Example: Interest Paid during 12 month period The lowest prior balance on your fixed rate 6% note was $94,000. The current balance, including accrued interest is $96,000 (i.e. there is $2000 of accrued interest currently due on this loan). What amount will you pay in interest over the next 12 months if: Payment is $450 per month Payment is $550 per month Payment is $750 per month FIN 4713 Class Examples Page 27 of 78
ARM Example 3. You are seeking a loan for your $250,000 house and have determined that you would like to choose an ARM because you expect to keep the house for just 3 years. Assume you make a 20% down payment and pay 1 point. What are your CF s and the yield to lender? What do you pay each year in interest? Initial rate 3.75% Annual adjustments Tbill + 2.75% (rounded to 1/8%) Max payment change of 7.5% per year (negative amortization allowed) Max interest of rate 6% above initial rate Index, now at 4.21, then changes annually to: 3.67, 6.23, 8.33 FIN 4713 Class Examples Page 28 of 78
FTLAPR for ARM. How is this computed? A 15-year ARM with 3 points ($100,000 note amount) is offered with an initial interest rate of 3% based on the 1 year Treasury Index that is currently at 5.82. The margin is 275 bp, and the composite rate will be rounded to the closest 1/8%. Annual interest rate cap is 2%, with a 6% lifetime ceiling (increase). What is the FTLAPR? FIN 4713 Class Examples Page 29 of 78
What is a Price Level Adjusted Mortgage (PLAM)? Consider a $100,000 loan offered at a 3% real rate of interest over 20 years, with 6 points payable upfront. Payments and loan balance will be adjusted annually. Assuming inflation over then next three years is 18%, 11%, and 15% respectively, what are the loan payments, and final payoff required at the end of year 3? What is the yield to lender? FIN 4713 Class Examples Page 30 of 78
What is a Shared Appreciation Mortgage (SAM) Example. You have a building currently valued at $1,200,000 for which you seek a $1,000,000 mortgage (30-year term with 5 year balloon). You are offered a SAM at 7%, where you must also pay the lender 50% of the appreciation after 5 years. For an 8% annual inflation rate for the building, and assuming you hold the building for 5 years, what are your cash flows on the loan. What is the yield to the lender? How does the IRS treat the lump sum payment to the lender? FIN 4713 Class Examples Page 31 of 78
Chapter 9 Real Estate Finance: The Laws and Contracts Why use a mortgage? What is a mortgage? The two instruments FIN 4713 Class Examples Page 32 of 78
Payments Prepayment FIN 4713 Class Examples Page 33 of 78
Recourse FIN 4713 Class Examples Page 34 of 78
Title v. Lien Theory Some Important Mortgage (DOT) Clauses FIN 4713 Class Examples Page 35 of 78
Default Non foreclosure remedies to Default Potential Disadvantages FIN 4713 Class Examples Page 36 of 78
Foreclosure Recourses to the Borrower Judicial Foreclosure v. Power of Sale FIN 4713 Class Examples Page 37 of 78
Bankruptcy Acquiring Property with existing Debt FIN 4713 Class Examples Page 38 of 78
Nonmortgage way to acquire property Mortgage Regulation FIN 4713 Class Examples Page 39 of 78
RESPA Real Estate Settlement Procedures Act FIN 4713 Class Examples Page 40 of 78
Adjustable Rate Mortgages (ARM s) FIN 4713 Class Examples Page 41 of 78
Chapter 23 (Partial Development Financing) FIN 4713 Class Examples Page 42 of 78
Development Finance Interest calculation A simplified starting example point. Consider the following construction loan with the noted monthly draws. The interest rate (APR) is 6.00%. No payments are made during the construction period. How much interest will be paid on this loan? Month Draw Amount 0 0 1 100,000 2 150,000 3 300,000 4 300,000 5 450,000 6 200,000 Totals 1,500,000 Interest Due EOM Balance What if there were points charged on this loan? Hmm - this looks like a spreadsheet.... FIN 4713 Class Examples Page 43 of 78
Example: Measuring Leverage Effect via MM equation. You buy a building for $5,000,000 that has an NOI of $400,000. You can sell this building for $5,000,000. What is the IRR from this investment? You can get a bullet loan of 65% LTV at 5% for this building. What is the levered return for this building? By solving for Cash Flows By solving with MM equation From examination of the MM equation, what is required for positive leverage? FIN 4713 Class Examples Page 44 of 78
Potential Gross Income NOI Before Tax Cash Flow FIN 4713 Class Examples Page 45 of 78
DY CAP rate Cash on Cash OpEx Ratio Break Even Occupancy Ratio FIN 4713 Class Examples Page 46 of 78
DCR Maximum Available Loan for target DCR What is the Maximum Loan for a DCR=1.35? FIN 4713 Class Examples Page 47 of 78
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What is the NPV and IRR rule, for evaluating investment desirability? What is the relationship between NPV and IRR? FIN 4713 Class Examples Page 51 of 78
Chapter 10 Residential Mortgage Types Some highlights A Mortgage Taxonomy FIN 4713 Class Examples Page 52 of 78
FHA Mortgages FIN 4713 Class Examples Page 53 of 78
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Veterans Affairs Guarantees FIN 4713 Class Examples Page 55 of 78
Private Mortgage Insurance FIN 4713 Class Examples Page 56 of 78
Example: When must PMI be automatically be cancelled? How do you determine when is the loan at 78% of the original purchase price? For a 30-year 4.75% loan with $10,000 down for a $200,000 house, in what month will the PMI be cancelled? FIN 4713 Class Examples Page 57 of 78
Other Mortgage Types Purchase Money Mortgage Piggyback Loan FIN 4713 Class Examples Page 58 of 78
Home Equity Lending Reverse Mortgages FIN 4713 Class Examples Page 59 of 78
Some more recent mortgage forms IO mortgages Hybrid ARM FIN 4713 Class Examples Page 60 of 78
Option ARM Subprime Loans FIN 4713 Class Examples Page 61 of 78
If the loans are prepaid after 6 years, what are the yields to the lender? FIN 4713 Class Examples Page 62 of 78
Chapter 11 Sources of Funds for Residential Mortgages - Highlights Portfolio and Non Portfolio Lending FIN 4713 Class Examples Page 63 of 78
Fannie Mae FIN 4713 Class Examples Page 64 of 78
Freddie Mac Importance of Fannie and Freddie FIN 4713 Class Examples Page 65 of 78
Lender Underwriting. The three C s What is the Front End (Housing Expense) ratio? Example: Your household income is $75,000 and your proposed loan has a PITI of $1,863.50 per month. What is your front-end ratio? FIN 4713 Class Examples Page 66 of 78
What is the Backend (Total Debt) ratio? If you have $925 in LTO, what is your backend ratio? Should you qualify for your proposed loan based on these ratios? How much in come do you need to qualify for this loan using a front-end ratio of 28% and a backend ratio of 36%? What if the only ratio that is used is a 43% backend ratio? FIN 4713 Class Examples Page 67 of 78
Why is a high credit score important in today s economy? What are 4 things that affect your credit score? How can you achieve and maintain a high credit score? FIN 4713 Class Examples Page 68 of 78
Subprime Lending some further points FIN 4713 Class Examples Page 69 of 78
Qualified Mortgage FIN 4713 Class Examples Page 70 of 78
Example: How much house can I afford? You have an income of $84,000 per year. You are applying for a 5%, 30-year FRM. Property Taxes are 2.5% of the house value, and insurance is 1% of the house value. Your LTO are $650 per month. You will be qualified on a 43% back end ratio. Hints: What is the maximum PITI you qualify for? What is your PITI for a $100,000 loan? Yay algebra! How much money will you need to bring to closing if closing costs are 5% of the house value and you will have a 20% down payment? FIN 4713 Class Examples Page 71 of 78
The examples below depend on the pacing of the class. Refinance Example 1: You currently have an 8%, 30-year loan you took out 2 years ago. You can refinance this at 6.5% with 3 points in fees to a new 28 year loan. You expect to keep this new loan for 2 years. Your original note was for $80,000 and you will take the closing costs from your savings account that is currently paying 5%. Is this a good choice? Does your tax situation affect your decision? FIN 4713 Class Examples Page 72 of 78
Refinance Example 2: You currently have an 8%, 30-year loan you took out 2 years ago. You can refinance this at 6.5% with 3 points in fees to a new 30-year loan. You expect to keep this new loan for 2 years. Your original note was for $80,000 and you will add the closing costs to your existing loan balance. Is this a good choice? FIN 4713 Class Examples Page 73 of 78
Example: Market Value of Existing Loan. You took out a 9%, 30- year mortgage for $160,000, four years ago. Current rates are 6.5%. What is the market value of this loan if: You keep the loan until maturity You payoff the loan 4 years from now What if the current market rate is 10%? FIN 4713 Class Examples Page 74 of 78
Example: Builder Buydown. To move inventory a builder is offering either a mortgage at 6% when rates are 6.5%, or a 2/1 buy down (2% lower interest rate the first year followed by a 1% buy down the second year. What are the values of these alternative financing alternatives (160,000 note amount) assuming you will keep the loan for a) 3 years, or b) 8 years? FIN 4713 Class Examples Page 75 of 78
Example: Value of Assuming an Existing Loan. Five years ago you purchased a new home for 100,000 (with a 20% down payment). You now have an offer in hand from a buyer for $150,000, subject to the buyer assuming your 5.5% loan. The buyer can get a 25-year second mortgage at 7.5% as long as he puts 20% equity into the deal. New 80%-LTV, 25-year mortgages are available at 6.5%. What is the apparent value of the note assumability (assume a 7 year horizon for the purchaser). FIN 4713 Class Examples Page 76 of 78
Solution: As usual, first we compute the payment, in this case starting with the PMT on the original note. P/YR=12 PMT(PV=-80000, N=360, I/YR=5.5) = 454.23 Compute Bal month 60 (today) and month 144 (7 years from now) for use later 1 INPUT 60 AMORT Bal60 = 73,968.57 1 INPUT 144 AMORT Bal144 = 62,196.82 Buyer needs $120,000 financing for 80% LTV 120000 73968.57 (assume) = 46031.43 needed as a second mortgage. PMT on 2 nd mortgage PMT(PV=-46031.43, N=300, I/YR=7.5) = 340.17 Compute balance after 7 years when you repay 1 INPUT 84 AMORT Bal84 = 40257.65 Total Pmt of assumed plus 2 nd : 454.23 + 340.17 = 794.40 Total Balance owed after 7 years: 62196.82+40257.65 = 102454.47 Or: Take out a new 1 st mortgage for 120000 (25 yr) PMT(PV=-120000, I/YR=6.5, N=300)=810.25 1 INPUT 84 AMORT Bal84 = 103011.36 PMT = 810.25 794.40 = 15.85 BAL = 103011.36 102454.47 = 556.89 Value of the assumption is the present value of savings PV(PMT=15.85, FV=556.89,N=84, I/YR=6.5) = 1421.13 FIN 4713 Class Examples Page 77 of 78
Example: FTLAPR disclosure. A customer is offered a 6.75%, 30 yr FRM loan for $160000 (80% LTV) with 3 points and no other financing fees. This loan will close on the first of the month. What is the FTLAPR? What is the Finance Charge? What is the Amount Financed? What is the Total of Payments? FIN 4713 Class Examples Page 78 of 78