# HOW TO LOWER A PAYOR'S PAYMENT - Posted by jim davis

Posted by jim davis on December 07, 1998 at 17:29:20:

Thanks, John and Bud for your help and i must admit this site is hands down the best on the web for cash flows and creative real estate.

Jim Davis

HOW TO LOWER A PAYOR’S PAYMENT - Posted by jim davis

Posted by jim davis on December 03, 1998 at 15:07:52:

I need various ways to figure how to lower a payor’s payment for a couple of years but yet still make the deal good to go with a buyer here is the deal:
Sale priice: 44000
down : 4000
Bal: 40000
int:10.25
term:360

Graduated payment - Posted by John Behle

Posted by John Behle on December 07, 1998 at 12:33:14:

If the intent is to make the payments easy for the buyer - while still having the note be valuable and saleable for the note holder, then a graduated payment might work.

In your example, the payments would be \$358.44 to fully amortize the loan in thirty years. If you started them lower at \$300 and then graduated them by \$25 per year, the loan would pay off much sooner. So, at the beginning of year 2 the payments go up to \$325. At the beginning of year 3, the payments go up to \$350, etc. - until the loan amortizes.

If someone wants to play with the calculations and tell me how long, I’ll post the answer in a seperate post.

Re: HOW TO LOWER A PAYOR’S PAYMENT - Posted by Bud Branstetter

Posted by Bud Branstetter on December 05, 1998 at 21:09:11:

Jim,

I’m not really with you on what the intent is. The typical answer might be interest only or even negative amortization the first few years. Then there is always the zero coupon bond to pay latter. A mortgage does not have to be fully amoritized. Define the problem a little better and we can take a shot at it.

Posted by Bud Branstetter on December 07, 1998 at 13:25:09:

With the payment \$300 for year 1, \$325 for year 2, \$350 for year 3 and 375 for year 4 and beyond the loan would pay off after 348 payments(\$1.33 left) or after payment 206 I could revert to the \$358.44 and let it finish 360 payments.

But then I could also graduate the interest rate at first to keep the payment down. Such as 9% the first year to keep the P&I at 300/mo and 10% the second year to keep the payment at \$325.

Posted by John Behle on December 07, 1998 at 14:47:15:

My general approach is to continue on past year four and have it graduate every year until amortized. Here’s the numbers.

## Yr``Beginning`````Payment`Ending #`Balance```````Amount````Balance

1`\$40,000```````\$300``````\$40,524.17 2`\$40,524.17`\$325``````\$40,790.16 3```\$40,790.16`\$350`\$40,770.24 4```\$40,770.24````\$375`\$40,433.67
5`\$40,433.67````\$400``````\$39,746.43 6`\$39,746.43`\$425``````\$38,670.84 7```\$38,670.84`\$450`\$37,165.16 8```\$37,165.16````\$475`\$35,183.20
9```\$35,183.20`\$500``````\$32,673.76 10``\$32,673.76`\$525`\$29,580.16 11``\$29,580.16````\$550`\$25,839.64
12`\$25,839.64````\$575``````\$21,382.67 13`\$21,382.67`\$600``````\$16,132.28 14``\$16,132.28`\$625`\$10,003.21 15``\$10,003.21````\$650`\$2,901.03

Remainder - 4.4 months.

So, if the payment continued to graduate, it would end up with a 15 year amortization. Much more attractive and palatable than a balloon payment, but a little more complicated. It might be too sophisticated for some paper buyers if the note were ever sold.

Also, the loan to value ratios of 90%+ go too high for most buyers, but as the property values increase, the note would be saleable.

As the payment goes up, it might become uncomfortable for many payors and they will likely refinance and end up paying you off early, yet still it is a more attractive situation for most. The note is also much more valuable if you went to sell.