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Real Estate Loan Calculations

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Problem 1: A loan was made 10 years ago with an original balance of $1,000,000.00 at a
fixed interest rate of 8.00% with equal monthly payments for 30 years.

A. How much is the monthly payment?
B. What is the balance today?
C. What will the balance be at the end of 5 more years?
D. When will the balance be paid down to 50% of the original balance?
E. How much would the borrower have to pay each month from now on in order to
repay the remaining balance in 10 more years?

Problem 2: An adjustable rate loan has a 2.50% margin with change caps of 2% per year
and a life cap of 5%. The start rate is 5%. The interest rate changes every 12 months.
Calculate the following for a $1,000,000 loan at these terms.
A. What is the payment for the first year?
B. What is the loan balance at the end of the first year?
C. Calculate the worst case scenario of payments for the first 4 years of this loan.
That means you will assume that the interest rate increases by the maximum
amount each year.
D. When the interest rate is adjusted for the first year, the loan index is 5.25%. What
interest rate will the borrower pay during the second year of this loan?
E. When the interest rate is adjusted for the first year, the loan index is 3.75%. What
interest rate will the borrower pay during the second year of this loan?

Problem 3: A lender makes a loan at Hybrid Option ARM at a fixed rate of 6.50%
interest for 7 years. The minimum required payment is calculated as 60% of the fully
amortized payment using a 30 year repayment term. The loan will recast if the balance
reaches 115% of the original amount. If the balance is recast, the borrower will be
required to pay the remaining balance over the remaining term at the full interest rate.

The minimum monthly payment is $10,000.00 per month.
A. What is the original amount of the loan?
B. If the borrower makes the minimum monthly payments, when will the loan
C. What will the new payment be for the month after the loan is recast?
D. What payment would be required so that the borrower would not hit the recast
until the end of 7 years (the fixed interest rate period of this loan.)?

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Solution Summary

This solution assists in specific real estate loan calculations

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Finance: M1, M2 money supply; discount rates, bank's total assets, equity capital ratio

Determine the size of the M1 money supply using the following information. Currency plus traveler's checks $25 million, Negotiable CDs $10 million, Demand deposits $13 million Other checkable deposits $12 million

Following are components of the M1 money supply at the end of last year. What will be the size of the M1 money supply at the end of next year if currency grows by 10 percent, demand deposits grow by 5 percent, other checkable deposits grow by 8 percent, and the amount of traveler's checks stays the same?

Currency $700 billion
Demand deposits $300 billion
Other checkable deposits $300 billion
Traveler's checks $10 billion

Assume that a country estimates its M1 money supply at $20 million. A broader measure of the money supply, M2, is $50 million. The country's gross domestic product is $100 million. Production or real output for the country is 500,000 units or products.

a. Determine the velocity of money based on the M1 money supply.
b. Determine the velocity of money based on the M2 money supply.
c. Determine the average price for the real output

The One Product economy, which produces and sells only personal computers (PCs), expects that it can sell 500 more, or 12,500 PCs, next year. Nominal GDP was $20 million this year, and the money supply was $7 million. The central bank for the One Product economy plans to increase the money supply by 10 percent next year.

a. What was the average selling price for the personal computers this year?
b. What is the expected average selling price next year for personal computers if the velocity of money remains at this year's turnover rate? What percentage change in price level is expected to occur?
c. If the objective is to keep the price level the same next year (i.e., no inflation), what percentage increase in the money supply should the central bank plan for?
d. How would your answer in (c) change if the velocity of money is expected to be three times next year? What is it now?

The following three one-year 'discount' loans are available to you:
Loan A: $120,000 at a 7 percent discount rate
Loan B: $110,000 at a 6 percent discount rate
Loan C: $130,000 at a 6.5 percent discount rate

a. Determine the dollar amount of interest you would pay on each loan and indicate the amount of net proceeds each loan would provide. Which loan would provide you with the most upfront money when the loan takes place?
b. Calculate the percent interest rate or effective cost of each loan. Which one has the lowest cost?

Following are selected balance sheet accounts for Third State Bank: vault cash _ $2 million; U.S. government securities _ $5 million; demand deposits _ $13 million; non transactional accounts _ $20 million; cash items in process of collection _$4 million; loans to individuals _$7 million; loans secured by real estate _$9 million; federal funds purchased _$4 million; and bank premises _$11 million.

a. From these accounts, select only the asset accounts and calculate the bank's total assets.
b. Calculate the total liabilities for Third State Bank.
c. Based on the totals for assets and liabilities, determine the
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Let's assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts:
Cash _ $5 million
Government securities _ $7 million
Mortgage loans _ $30 million
Other loans _ $50 million
Fixed assets _ $10 million
Intangible assets _ $4 million
Loan-loss reserves _ $5 million
Owners' equity _ $5 million
Trust-preferred securities _ $3 million

Cash assets and government securities are not considered risky. Loans secured by real estate have a 50 percent weighting factor. All other loans have a 100 percent weighting factor in terms of riskiness.

a. Calculate the equity capital ratio.
b. Calculate the Tier 1 Ratio using risk-adjusted assets.
c. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio using risk-adjusted assets.

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real estate 40 deposits 66
Commercial loans 45 Federal funds
purchased 15
Government Trust-preferred
securities owned 16 securities 2
Goodwill 5
Bank fixed assets 15 Owners' capital 5
Total assets $138 million Total liabilities $138 million
and owners'
All amounts are in millions of dollars.

Note: The bank has loan-loss reserves of $10 million. The real estate
and commercial loans shown on the balance sheet are net of the
loan-loss reserves.

a. Calculate the equity capital ratio. How could the bank increase its equity capital ratio?
b. Risk-adjusted assets are estimated using the following weightings process: cash and government securities _.00; real estate loans _.50; commercial and other loans _ 1.00.
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c. Calculate the Tier 1 Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
d. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
e. What actions could the bank management team take to improve the bank's Tier 1 and Total Capital ratios?

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