Chapter 13
Appraisal Mathematics and Real Estate Finance

Compounding

u   Future value of a lump sum

u   Future value of an annuity

u   Sinking fund

Discounting

u   Present value of a lump sum

u   Present value of an annuity

u   Uneven cash flows

u   Payments in advance

Calculating a Mortgage Payment

u   A mortgage payment calculation is a present value of an annuity problem.

u   Enter the payments per year (P/YR)

u   Enter the number of years (xP/YR)

u   Enter the annual interest rate (I/YR)

u   Enter the loan amount (PV)

u   Solve for Payment (PMT)

Mortgage Payment Example

u   What is the monthly mortgage payment on a 30 year, $100,000 loan at 12% annual interest?

u   Enter the payments per year (12 P/YR)

u   Enter the number of years (30 xP/YR)

u   Enter the annual interest rate (12 I/YR)

u   Enter the loan amount (100000 PV)

u   Solve for Payment (PMT) Display shows 1028.61

Morgtgage Buydown Calculation

u   First compute the payment required at the market terms

u   Next compute the payment required at the buydown rate.

u   Subtract the two to determine the amount of the buydown savings.

u   Discount the buydown savings at the market interest rate for the duration of the savings.

Buydown Calculation Example

u   What is the amount the bank would charge to buydown the monthly mortgage payment on a 30 year, $100,000 loan from 12%  annual interest to 11%?

u   First compute the payment required at the market terms (1028.61)

u   Next compute the payment required at the buydown rate (952.32)

u   Subtract the two to determine the amount of the buydown savings. (1028.61 - 952.32 = 76.29)

u   Discount the buydown savings at the market interest rate for the duration of the savings. (76.29=PMT, I/YR=12, 30xP/YR, solve for PV.  Display shows 7416.79)

Mortgage Mathematics

u   Mortgage Payments

u   Computation of APR

u   Computation of Buydown amount