Financial Calculations

Nominal rate/ periodic interest

• Allows lenders to calculate interest due for the month based on the payment schedule

• (Annual rate) / (Number of payments in a year) = (periodic rate)

• (Periodic rate) * (loan balance) = (periodic rate)

Per Diem/daily interest

• Can use a bankers or standard calendar

  • bankers calendar if month is not named in question

  • standard calendar is used if a specific month is named in the question

• day of funding is always included

  • Borrowers begin accruing interest the day the debt is owed

Standard calendar

365-day year and actual number of days, depending on the month

• (interest rate) * (Loan balance) = (Annual interest)

• (Annual interest) / 365 = (Daily interest)

• (Daily interest) * (number of days from funding to end of month) = (total per diem/daily interest)

Bankers calendar

30-day month and 360 day year

• (interest rate) * (Loan balance) = (Annual interest)

• (Annual interest) / 360 = (Daily interest)

• (Daily interest) * (number of days from funding to end of month) = (total per diem/ daily interest)

Taxes

(Annual property tax) / 12 = (Monthly taxes)

Insurance

(Annual insurance premium) / 12 = (Monthly insurance)

Mortgage insurance

• (Loan amount * (Mortgage insurance factor) = (Annual Mi)

• (Annual MI) / 12 = (Monthly MI)

Loan Amount

• (purchase price) * (LTV) = (Loan Amount)

  or

• (Purchase price) - (Down payment) = (Loan amount)

Down Payment

• (Purchase) * (Down payment percentage) = (down payment amount)

  or

• (Purchase price) - (loan amount) = (Down payment amount)