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 Interest)

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

• Bankers calendars have 30-day month and 360 day year

• Standard calendars have 365-day year and actual number of days, depending on the month

  • 28,30, or 31 days

• To remember the number of days in each month, use the knuckle trick

  • 30 days has September, April, June, November

  • Left-to-right, up is 31, down/space is less than 31 days

• The day of funding is always included

  • Borrowers begin accruing interest the day the debt is owed

• (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)

per diem/ daily interest

• (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)

DTI

• Relationship between income and contractual obligations

• (Revolving debt balance) x 5% = (Required min payment)

Student loan payments

• Greater of payment listed on credit report or mortgage investor minimum

• Fannie Mae: 1% of balance owed

  • Balanced owed * 1% = monthly payment

• Freddie Mack/FHA: .5% of balance owed

  • (Balance owed) * .5% = Monthly payment

• VA: 5% of balance owed, divided by 12

  • (Balance owed * 5) / 12 = (Monthly payments)

Temporary buy down calculations

• Funds are placed in an escrow account at consummation

  • Included in closing costs

  • typically covers first 1-2 years of the loan

  • concessions can be used towards a temporary buy down

• (Note rate payment) - (Discount rate payment) = difference

  • Difference * 12 = amount needed in escrow

    • Repeat the calculation as needed

cash to close

• (payoffs) + (Financing costs) + (Govt surcharges) + (prepaid costs) = (total costs and payoffs)

• (Loan amount) - (total costs and payoffs) = (cash needed on average to buyer)