Chapter 3

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# Chapter 3 - PowerPoint PPT Presentation

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

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)

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?
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)

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?
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

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?
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

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

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