Amortization

Property Tax Rates

  • Acreage and Trees: Property must be at least 10 acres, with 5 acres dedicated to trees to qualify for tax benefits.

  • Tax Rates:

    • For properties qualifying under the above criteria: 4%.

    • Commercial and Industrial properties: 6%.

    • Personal Property (vehicles, boats, RVs, etc.): 10.5% of depreciated value, leading to higher car taxes.

Amortization Payment Calculation

  • Understanding Amortization: Essential for calculating monthly principal and interest payments on loans.

    • Key Concept: Payment can be calculated per $1,000 of the loan amount.

    • Example Calculation:

      • Loan for 80% of a $450,000 property value.

      • Loan Amount Calculation: $450,000 x 80% = $360,000.

      • Interest Rate: Assume 6.5% for 30 years.

    • Calculate Monthly Payments:

      • Divide loan amount by 1,000: $360,000 / 1,000 = 360.

      • Find rate factor for interest rate (6.5%) in amortization chart (for 30-year term): 6.33.

      • Monthly Payment: $360 x 6.33 = $2,278.80 (inclusive of principal and interest).

Discount Points

  • Definition of Discount Points: Upfront interest paid at closing to reduce interest rates on loans.

    • Important Toggle: Discount points do not affect monthly loan payments directly but can lower them through reduced interest rates.

  • Example Scenario: Paying 2 Discount Points to reduce the interest rate to 5.5%.

    • Payments remain calculated on the loan amount minus upfront discounts.

  • Loan Calculation Details:

    • Home Purchase Price: $550,000.

    • Down payment of 18% equals $99,000.

    • Loan amount is $550,000 - $99,000 = $451,000.

    • Rate Factor for 5.5%: 5.68.

    • Monthly Payment Calculation: $451,000 / 1,000 = 451

    • Monthly Payment: $451 x 5.68 = $2,561.68.

Essential Steps to Calculate Monthly Payments

  1. Identify Sales Price and Down Payment: Example: Sales Price - Down Payment = Loan Amount.

  2. Calculate Loan Amount: Loan Amount ÷ 1,000.

  3. Find Rate Factor: Based on the interest rate and term (15 or 30 years).

  4. Calculate Payment: (Loan Amount ÷ 1,000) x Rate Factor = Monthly Payment.

Study Techniques and Recommendations

  • Exam Preparation: Spread study time into 30-45 minute blocks for better retention.

  • Key Exams: Focus primarily on the upcoming exam; PSI info is secondary.

  • Tips for Stress Management: Prioritize learning and understanding over perfectionism to reduce pressure.

Important Reminders

  • Understand that discount points are part of the closing costs and do not factor into regular payment calculations for the loan.

  • Practice calculations and familiarize yourself with amortization charts for better performance in exams.