Simple questions re: CS program - Posted by London

Posted by hector on November 25, 1998 at 17:29:34:

Go to your favorite bookstore and buy a book on real estate math (about $20). It’s a good investment until you learn to work the numbers (or know the formulas).

Simple questions re: CS program - Posted by London

Posted by London on November 25, 1998 at 24:50:07:

This is a follow up to my original post: “confused about the CS program”

I have a lot of questions to ask but I can only think of two right now. I’m reviewing the course and when I remember some other questions I’ll be sure to post them.

  1. The biggest problem I have is figuring out the interest rates on existing mortgages (or bank mortgages). I’m told they have a different way of figuring out an interest rate and payments. For example: if there is an existing mortgage of 50,000 @ 8% interest rate -what does that mean? 8% per year or of the total???

  2. In Technique #3 I don’t understand how the sellers equity grows from 20,000 to 33,000. I just don’t know how to work out the math.

These questions must seem so funny and simple to most of you but I’m really having a hard time. Please help!

Thanks, London :slight_smile:

Re: Simple questions re: CS program - Posted by MilNC

Posted by MilNC on December 02, 1998 at 10:29:37:

Brad Crouch posted a list of sites on Sept. 17.
One is for calulating online:

Re: Simple questions re: CS program - Posted by JohnBoy

Posted by JohnBoy on November 25, 1998 at 18:34:17:

The 33,000 equity is in the mortgage the seller held back as the “wrap around” mortgage. This equity would be after the seller carried the wrap around mortgage for 20 years. In the example your referring to, the equity isn’t built into the deal right of way. It would have taken 20 years of receiving payments from the buyer on the wrap around mortgage.

When the buyer bought the property for $50k, the seller only owed $20k. While the buyer was making his payments at 10% interest on the $50k wrap around mortgage, the seller was paying down his original mortgage that had the $20k balance owed at the time the buyer purchased the property for $50k.

After making payments on the $50k at 10% interest for 20 years (the time remaining on the original $20k mortgage) the seller’s $20k mortgage would be paid off. The balance owed to pay the $50k wrap around mortgage off after 20 years would be the $33,000 Carleton’s example was referring too.

Since the original $20k on the first mortgage that the seller had would be paid off in 20 years, the seller would still be owed the $33,000 remaining on the buyers $50k wrap around mortgage which leaves the seller with $33,000 in equity on the wrap around mortgage.

Interest on a mortgage is calculated annually and usually amortized over 15, 20, 25, or 30 years. 30 years is the most common.

When you make your monthly payment each month, in the beginning of the mortgage the biggest part of that payment each month is applied to the interest and a smaller portion is applied to the principle on the amount you borrowed. Each month you make your payment a little less goes towards the interest while a little more goes to the principle. In the example Carleton uses on the $50k wrap around mortgage at 10%, the payments would apply like this:

$50,000 loan amortized over 30 years at 10% interest.

30 years = 360 monthly payments at $445.00 per month.

First payment - $445.00
Principal - $21.34
Interest - $423.66

Second payment - $445.00
Principal - $21.52
Interest - $423.48

Third payment - $445.00
Principal - $21.70
Interest - $423.30

You see how a little more is applied to the principal each month while a little less is going towards interest?

After you would have made payments on this for 20 years your principal balance remaining on this loan would be $33,437.89

This is the equity left in the mortgage still owed to the seller after you made payments for 20 years.

In Carleton’s example he showed the seller’s original payment was $245.00 on the $20k loan he had remaining on the property. The buyer was making payments of $445.00 on the $50k wrap around mortgage. After the seller made his $245.00 payment on the $20k loan, he had $200.00 per month left over to keep for himself. $200 x 12 months = $2400.00 per year in extra income for the seller. After 20 years the seller would have received $2400 x 20 = $48,000.00 in extra income. Plus the seller still has a remaining balance owed to him on the $50k mortgage (the equity in his mortgage) of $33,437.89

The total amount the seller would receive for his property over a 20 year period, providing the balance is paid off at the end of 20 years, would be $33,437.89 + $48,000.00 = $81,437.89

Re: Simple questions re: CS program - Posted by AL

Posted by AL on November 25, 1998 at 07:32:53:

LONDON,no question is a dumb question,the interest rate is figured per year of the remaining loan balance,there is a formula to figure out what payments are on this loan (question 1) a good bus.calculator will help you figure it out (i`m sure someone on this site knows it step by step) i use a program in my computer to figure this figure out if you have MS MONEY you have this same program in your computer other wise other web sites ( also have morgatage cal.for free or you can purchase this program for your computer for in between $10.00 and $30.00.Your second question i need some information to see exactly what the example is (type out the whole example----I KNOW!) but we want to make sure your getting complete answers.AL