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Chapter 3

Chapter 3. Math Problems- Loan Points. Cash value of Points. You get a loan for $36,000 at 9% and the lender is charging 1 point. 36,000 x .01 = $360 (cash value of 1 point) You get the same loan and the lender is charging 3 points. 36,000 x .03 = $1080 (cash value of 3 points).

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Chapter 3

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  1. Chapter 3 Math Problems- Loan Points

  2. Cash value of Points • You get a loan for $36,000 at 9% and the lender is charging 1 point. 36,000 x .01 = $360 (cash value of 1 point) • You get the same loan and the lender is charging 3 points. 36,000 x .03 = $1080 (cash value of 3 points)

  3. Cash value of points on a sliding scale loan • Sales price of a house is $142,000. The bank will lend 97% on the first $25,000 and 95% of the balance at 8.5% interest. Origination fee is 3 ½ points. What is the cash value of the points?

  4. Solution 1. find the amount over 25,000 $142,000 - $25,000 = $117,000 2. Find the loan amount 97% of $25,000 = $24,250 95% of $117,000 = $111,150 Total loan amount = $135,400 3. $135,400 x .035 = $4,739 (cash value of 3 ½ pts)

  5. Point value to increase lender’s return • The bank loans $48,000 at 9% plus 5 points. What is the lender’s adjusted rate of interest including the points?

  6. Solution • Multiply the 5 points by 1/8 % increase in interest. 5 x 1/8 % = 5/8% • Add the increase return of 5/8 to 9% interest • The adjusted rate of return is 9 5/8% * 1/8 = .125

  7. Problem • You purchase a home for $152,000. The bank lends 80% at 8 ¾% plus 6 points. What is the cash value of the points?

  8. Solution • $152,000 x 80% = $121,600 $121,600 x .06 = $7296 cash value of points • What is the adjusted yield? .125 x 6 points = .75 Add to 8 ¾ % = 9.5 % is the true yield

  9. PITI payments Monthly principle and interest is $826.42. Annual property taxes are $993.24, annual insurance is $244.32. What is the monthly PITI payment

  10. Solution to PITI Annual taxes: 993.24 /12 = $82.77 monthly Annual insurance: $244.32 /12= $12.36 monthly PI= 826.42 Taxes = 82.77 Ins = 20.36 Total monthly PITI = $929.55

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