Chapter 15

Mortgage Calculations

Finance

TimeRisk

What would you rather have?

1,000 in 5 yearsor

2,000 in 10 years?

What would you rather have?

Depends on the discount rate

Years FV 10% 20%

5 1,000 620.92 401.88

10 2,000 771.09 323.01

Five Characteristicspayment amount & frequency

loan balancelender’s yield (IRR)

effective borrowing costpresent value of the debt

Loan Balancecalculate the present value of

the remaining payments

Loan Balance100,000 at 30 years at 10%

PMT 10,607

After 10 years?20 years at 10% at 10,607

PV 90,303

Lender Yield (IRR)100,000 at 30 years at 10%

PMT 10,607

Points 5,00095,000 at 30 years at 10,607

i = 10.63%

Chapter 16

Commercial Mortgages

Commercial vs. Residentialmore risk

shorter termshigher down LTV

non-recourse

Commercial Loans

Construction LoanPermanent Loan

The Notepayment amount and timingpenalties for late payments

insurancemaintenance

default

Interest Onlypay only interest

pay principal balance at maturity

“bullet loan”

Balloon Mortgageamortize over 25-30 years

maturity 5-15 years

must be prepared to payoff loan at maturity

RatiosLTV - loan to value ratio

loan ÷ valueDCR - debt coverage ratio

NOI ÷ debt service

DCR1.3 to 1.5

how much NOI is there available to make the debt

payment?cushion to cover

Chapter 18

Investment Decision Ratios

Yield AnalysisHow can you improve yield?

Leverage

Leverage

Using other people’s money to make more money on my money.

Leverage

Leverage

Leverage

Two Elements

Equity - ownerDebt - lender

Yield AnalysisPurchase Price 1,000,000

NOI 100,000

Overall Rate 10.0%

Loan 750,000

Years 30

Rate 8.0%

Payment 66,621

Yield Analysis

Debt 750,000 66,621 8.9%

Equity 250,000 33,379 13.4%

Total 1,000,000 100,000 10.0%

Value NOI Rate

Excel Yield Analysis

Effective Gross IncomeMultiplier

Price ÷ EGI

Operating Expense Ratio

Expenses ÷ EGI

Report HintsCost ApproachNeighborhood

Land Rates - C21Building Rates

Office Retail

Construction RatesPer Square Meter

Retail - one level: 1,000 - 1,400Retail - 2+ levels: 1,200 - 1,800

Office: 1,500 - 1,800

Source: Altaweed Appraisal

Source: C21 Riyadh

Source: C21 Riyadh