# Interest Only Mortgage - Need help in calculating - Posted by Ted D.

Posted by Floyd Powell on March 21, 2000 at 12:55:07:

You need to pay interest only payments {{{{PER ANNUM}{}}}} and every seller who has accumulated any type of equity will know that! At \$455,000.00 @ 7% interest, your monthly will be \$ 2,654.17 per month period. If you even try to pay it on a 36 month period you won’t do many deals I gaurantee it. Be honest, be fair and most of all be real! If you had a \$455,000.00 home would you let it go for \$800 some ought dollars per month? Of coarse not! Your payments would be so much higher and you would have to wonder how the bank would not forclose if they didn’t receive their payment! If you were receiving \$800.00 and your monthly was say \$2,300.00 where on this God forsaken earth would the rest come from? Foreclosure is pretty clear at this point and only a dummy wouldn’t see it. PLEASE PEOPLE DON’T STEER THIS GUY WRONG! WE ARE NOT TALKING \$455.00 HERE IT’S \$455,000.00!

I may be not seeing things correctly here either. But to the gentleman that posted this \$800 + payment on \$455,000.00 , sir I need a loan of \$455,000.00 from you. Can I have the terms that you told this guy to ask for? I would be so greatful. Thanks

Just my thoughts

Floyd Powell

Interest Only Mortgage - Need help in calculating - Posted by Ted D.

Posted by Ted D. on March 20, 2000 at 17:01:10:

I have a question on interest only financing that I hope someone can answer. I have made an offer on a property where the owner is willing to take a 95% mortgage, interest only for 3 years at 7%. I need to make sure I am calculating the numbers correctly:

Purchase price: \$480,000
Amount of mortgage: \$455,000
7% amort. over 30 yrs: \$1764.00 per month (interest only)

I arrived at this number by using my financial calculator to figure out the principle and interest payment at 7% over 30 years (\$3027). I then took the loan amount (\$455k) and divided it by 30 years (\$1264) to arrive at the ‘principle’ amount. I then subtracted the ‘principle’ from the PI payment and arrived at \$1764.00. Is this correct? Is there any easier way to figure this out?

You don’t need a financial calculator! - Posted by Paul_NY

Posted by Paul_NY on March 21, 2000 at 23:55:51:

Here’s the math used to calculate simple interest:

455,000 x .07 = 31850

31850 / 12 = 2654.16666666666666666666666666667

You never pay on the principle. It is the loan amount times the interest rate divided by 12 months. The final result is your monthly payment.

Simple eh!

Done Deal! - Posted by Ted D.

Posted by Ted D. on March 21, 2000 at 13:34:15:

The seller just countered at interest only payments of \$2000 a month for 3 years. Gotta go sign it up now. Thanks for all your help!

Re: Now THAT’S funny!!! - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 21, 2000 at 01:36:39:

To each their own! (math that is!)

How many REI’s does it take to screw in a light bulb?

Only one…but the light bulb has to be VERY motivated!

Couldn’t resist. I had an even different way to come up with an answer!

LOL!

Stacy

You sure do need help–and so, apparently, do lots of others - Posted by Eduardo (OR)

Posted by Eduardo (OR) on March 20, 2000 at 23:17:24:

Ted and everybody else–

JD below has the right answer, but he doesn’t tell you how he to get it using a financial calculator (such as the HP-12C, 10B, 17B, 19BII, the TI BA35 and so on. Look, “interest-only” means to everybody in this business from investors, real estate brokers, appraisers, banks, mortgage brokers, anybody, that the payments are just that–INTEREST-ONLY! There is no part of the payment that goes toward reducing the principal at all! Therefore the final balloon payment is the same size as the initial loan amount, ALWAYS! It is calculated on a financial calculator the following way using the 12C: Put 455,000 in PV (the initial loan amount), put -455,000 in FV (the balloon payment, put the annual interest rate (7% [.07] divided by 12 months in i by pressing 7, then the blue key, then i (you should see 0.583333etc., put any number at all in n (you’ll get the same answer whether you use 1, 36, or a million). Solve for PMT–see -2,654.16666etc. The interest-only payment is \$2,654.17! If you have a financial calculator you should be doing it this way (with adjustments for the particular brand of calculator. Some don’t observe the cash flow sign convention of +'s and -'s, some don’t have blue keys, etc. But they all do it the same basic way–even RPN or algebraic machines). Now isn’t that simple? Just like the book says. --Eduardo P.S. JD’s way is even simpler: Divide the annual interest rate in terms decimal terms (.07) by the number of payments in a year (12) and multiply by the number of dollars in the loan (455,000). You get exactly the same (correct) answer.

I think you misunderstood me… - Posted by Bassman

Posted by Bassman on March 20, 2000 at 20:14:49:

My offer would be that of the seller receiving the \$32k as a total interest earned. Not , hey how can I make more money for the seller. Or maybe you guys enjoy giving away lots of money to sellers when not needed.
My offer would be " Ok Mr seller, here is how we will pay back your loan… 7% interest only pmts spread over 3 yrs with a balloon . Tha will mran you will receive an extra \$32k from this deal, does that sound good to you sir?? Great , pmts of \$890 will commence in 4 months, and will last for 35 pmts with a balloon pmt of \$455,890. does that sound fair? I agree , please approve the paperwork right here.
But thats just me , and this is only my opinion.

Scott Cooper

If you both agree - Posted by d.moren

Posted by d.moren on March 20, 2000 at 19:04:27:

Ted,
As long as you both agree on it, you can figure the interest pmt. any way you want!
But on a \$455,00 for 30 yrs @ 7%, your monthly interest is 2,654 dollars. Since the balance number never changes, the interest is the same every month.

\$455,000*.07/12mo=\$2,654.17/mo - Posted by JD

Posted by JD on March 20, 2000 at 18:48:10:

.

Re: Interest Only Mortgage - Need help in calculating - Posted by Bassman

Posted by Bassman on March 20, 2000 at 17:23:11:

Hi Ted,
Typically when I work the interest only pmts to a seller i do it as such:

\$455,000 X 7% = \$31,850.00 / 36 pmts ( 3 yrs) = \$884.72

If you compute it the way you did , your forgetting the fact that the amoritization slowly takes into account the principle going down thereby your interest pmt going down. Doing it as amoritized makes a larger interest pmt on the front end.
Im sure you dont want that ? Otherwise you are goping to pay them \$63,504 in interest instead of \$32k .Too bad you couldnt get a longer balloon , 3 yrs isnt much time , unless your planning on getting a cash buyer within that time.
Hope this helps.
Scott Cooper

Congratulations - Posted by Bassman

Posted by Bassman on March 21, 2000 at 14:02:06:

By the way was your offer the offer of \$1600 month interest only ? Either way , since this is a four plex that did kinda make some of the figures and discussion different.
But any way, congratulations and sorry if I confused you.
Scott Cooper

I forgot to mention this is a 4 plex. - Posted by Ted D.

Posted by Ted D. on March 21, 2000 at 13:36:43:

The NOI is \$28,600 a year.

Re: You sure do need help–and so, apparently, do lots of others - Posted by Bassman

Posted by Bassman on March 21, 2000 at 08:35:23:

Eduardo, I am sure the way you do it is probably the correct factual way, but when I convince a seller to accept it my way , with a pmt of \$890 each month for 3 yrs, I like my explanation better. The person would not be able to resell , or L/O the house let alone rent it , with a minimum monthly rent at \$2654.17. He will be holding on to an empty house for the 3 yrs and wonder how he is going to pay for a \$455,000 house he has already sunk \$95,550.12 into, with no one wanting to rent at that high of a pmt.
Make sense?
With a pmt of \$890 and a balloon of \$455,000 in three yrs , he should be able to find a L/O candidate, or Contract for Deed buyer fairly easy , even after raising the rent to \$1500 .
Just my thoughts, thanks for the help.
Scott Cooper

Depends if its 7% per year or per 3 years… - Posted by David

Posted by David on March 20, 2000 at 17:50:01:

Bassman got it right if 7% per three years, if 7% per annum then the monthly payment would be THREE TIMES higher.
David

Re: Interest Only Mortgage - Need help in calculating - Posted by Ted D.

Posted by Ted D. on March 20, 2000 at 17:36:14:

Thanks, but that’s compounding 7% over 3 years instead of 1 year isn’t it?

Re: I forgot to mention this is a 4 plex. - Posted by JPiper

Posted by JPiper on March 21, 2000 at 13:55:32:

Looks like you’re locking yourself into a “cap rate” of 6.3%…assuming you figured your expenses right. Based on the rest of this thread…I’m betting you didn’t. This deal looks way over priced…and your terms may not bail you out in 3 years.

JPiper

Re: You sure do need help–and so, apparently, do lots of others - Posted by JPiper

Posted by JPiper on March 21, 2000 at 12:46:35:

The only thing wrong with your explanation is that it doesn’t answer the original question…what’s a 7% interest only payment on a \$455,000 loan. Your payment is a 2.35% interest only payment.

JPiper

Re: Depends if its 7% per year or per 3 years… - Posted by Ted D.

Posted by Ted D. on March 20, 2000 at 17:53:17:

What about the way I calculated it in my example? Can’t I use that as a flat payment over 3 years?

I Agree With Mr. Piper - Posted by Floyd Powell

Posted by Floyd Powell on March 21, 2000 at 14:27:04:

That cap rate of 6.3% (By the way Mr Piper “”“EXCELLENT MATH”"""") is what I am figuring also makes this deal waaaay overpriced ! I would either counter back with better terms or I would simpy walk away from this one. What do you say JPiper?

Floyd

Re: You sure do need help–and so, apparently, do lots of others - Posted by Bassman

Posted by Bassman on March 21, 2000 at 13:24:58:

If a person is going to pay \$2654.17 per month , and it would only be interst payments , and I would still owe a balloon of \$455,000 , why not pay a couple extra hundred on an amoritzed payment ( \$3014.78) and have the principle go down instead??
By the way , we never did ask what the sellers pmts are, sellers loan amount is, is it free and clear, etc etc etc. Have I done a deal like this, yes ( not that high a price, but yes)Did the seller accept what i had stated before yes. I even did a deal where it was a subject to , and the equity was financed as no interest , no payment for 5 yrs. I apologize if I sound outrageous in what I say, but , you dont know what the seller will accept unless you ask.
I respect your knowledge and experience Jim so I will bow out of this thread and yield to you, as I would rather stay a friend than have you distrust me.
Scott Cooper