MATH CLASS 2

GOBC Real Estate • Mortgage Notes

• PAYMENT
• N
• OUTSTANDING BALANCE
• PRINCIPAL REDUCTION

www.GOBCrealestate.com
 MATH CLASS 2

QUICK REVIEW: Conversion using NPEPN

Compounding #EFF J1 Payment When do we do NPEPN?

Frequency Frequency WHY? To match J comp freq to pmt freq

J 12 = 6 %
PMT = 0

J 12 = 6 %
6 # NOM
PMT = 12
12 # PYR

# EFF (J 1)

4 # PYR J 12 = 6 %

# NOM PMT = 4

Find the Payment (PMT)

1. A vendor is willing to sell his house, by way of a take-back mortgage, for $90,000. The vendor demands 24
monthly payments, and payment of the outstanding balance in the amount of $75,000 with the 24th payment. The
vendor wishes to earn an
effective rate of 15% on his
N J 1.
= # NOM
money. What is the monthly
payment required?
IYR PMT = # PYR
(1) $1,664.80
(2) $7,048.03 PV # EFF
(3) $1,599.23
PMT # PYR
(4) $720.60

FV # NOM

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 MATH CLASS 2
2. A local builder negotiates an interest only loan with ABC Finance Company. The face value of the loan is
$450,000, the interest rate is J2 = 14%, the term of the loan is 3 years, and the interest only payments are to be
made monthly. What will be the size of the interest only payments?

(1) $5,103.12
(2) $5,282.44
(3) $5,250.00
N J 2.
= # NOM
(4) $5,468.30
IYR PMT = # PYR

PV # EFF

PMT # PYR

FV # NOM

#PYR

3. A 1.4-million-dollar construction loan is written at 21% per annum, compounded semi-annually and requires
monthly interest only payments. The amount of those payments is:

(1) $24,500.00
(2) $23,652.78
(3) $23,492.17
(4) $23,635.28 N J 3.
= # NOM

IYR PMT = # PYR

PV # EFF

PMT # PYR

FV # NOM

#PYR

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 MATH CLASS 2
4. Carolyn has recently received an interest only loan for $80,000 to operate a food cart in downtown
Vancouver. The loan has an interest rate of 9% per annum, compounded quarterly, and requires interest only
payments every quarter. Calculate the quarterly interest only payments that Carolyn makes if the duration of
the loan is 18 months?

(1) $1,200
(2) $3,600 N J 4.
= # NOM
(3) $1,800
(4) $7,200 IYR PMT = # PYR

PV # EFF

PMT # PYR

FV # NOM

#PYR

Find N
5. A borrower has arranged a loan of $32,000 at an interest rate of 17% per annum, compounded semi-annually
with payments set at $1,575.00 per month. What is the period necessary to amortize the loan?

(1) exactly 24.129764086 years

(2) exactly 23.9705036885 years
(3) approximately 2 years
(4) approximately 20 years

N J 5.
= # NOM

IYR PMT = # PYR

PV # EFF

PMT # PYR

FV # NOM

#PYR

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 MATH CLASS 2
6. An Agreement for Sale in the amount of $85,000 requires the purchaser to "make payments of $1,250 per month
for as long as necessary to fully amortize the loan at 18% per annum compounded semi-annually, not in advance".
How many FULL payments of $1,250 will be required?

(1) 286
(2) 287
N J 6.
= # NOM
(3) 209
(4) 210 IYR PMT = # PYR

PV # EFF

PMT # PYR

FV # NOM

#PYR

7. Joe Carmichael borrows $5,268 at an interest rate of 1.5% per month. He agrees to repay $263 per month. For
how many FULL years will Joe have to make payments?

(1) 2
(2) 8 N J 7.
= # NOM
(3) 20
(4) 24 IYR PMT = # PYR

PV # EFF

PMT # PYR

FV # NOM

#PYR

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 MATH CLASS 2
Find Outstanding Balance (OSB) / Principal Reduction (PR)
8. Ali borrows $60,000 written at 7% per annum compounded, semi-annually. His loan is fully amortized over 25
years with a 5-year term. Payments are made monthly and rounded up to the next higher dollar. What is the
outstanding balance after 5 years?

N J = # NOM

IYR Pmt = # PYR

PV # EFF

Step 1: Find PMT, round up, plug back in PMT

PMT # PYR
PMT =
FV # NOM
Step 2: Nuggets and fries (N + F)
#PYR

Step 1: “Step 1 - Find PMT (round it up and plug it into PMT key).

Always round to the next higher cent unless given different instructions within your question.

E.g. PMT = -420.2394…

Outstanding Balance (OSB)
Higher cent? +/- PMT

Higher dollar? +/- PMT 1. Find PMT

2. Term # N , press FV
Higher $10? +/- PMT
(Nuggets and Fries!)
Higher $100? +/- PMT
New N: new time?
New N: Term x Pmt frequency
Step 2: “Step 2 – Do your nuggets and fries”
What is the Outstanding Balance after 5 years?

5# N then press FV How much PV does the

(5 x 12) borrower still owe after
making 5 years of payments?
***We need to find the payment so we know how much has been paid over the term.
Once we know how much has been paid, we can find how much is still owed

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 MATH CLASS 2

Principal reduction? PRINCIPAL REDUCTION (PR)

How much PV has the borrower paid down
over the term? 1. Find PMT
2. Term # N , press FV
3. LOAN (PV) – OSB = Principal Reduction

Step 3: “Step 3 – Subtract the OSB from the original loan amount”

9. A borrower is arranging a third mortgage with Brass Knuckle Finance Company. The loan amount is $17,000, the
interest rate is 21.5 % per annum, compounded monthly, the amortization period is 15 years and the contractual
term is 2 years. If the payments are made monthly, rounded up to the next higher $10, calculate the outstanding
balance at the end of the
loan term.
(1) 16,614.51
(2) 16,317.91
(3) 16,839.34
(4) 16,542.73

10. Calculate the amount by which the principal is reduced during the five-year term of a $159,900 mortgage at J12 =
12% with a 25-year amortization. Assume the monthly payments are rounded to the next higher cent and paid
when due. The principal reduction is:
(1) 89,583.15
(2) 6,950.91
(3) 152,949.09
(4) 6,529.15

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 MATH CLASS 2
11. A borrower is arranging a mortgage with Nicety Finance Company. The loan amount is $175,000, the
interest rate is 4.5% per annum, compounded semi-annually, the amortization period is 20 years, and the
contractual term is 2 years. If payments are made monthly and rounded up to the next higher $10, calculate
the outstanding balance at the end of the loan term.
(1) $144,157.84
(2) $157,323.50
(3) $163,479.73
(4) $151,232.96

12. Calculate the outstanding balance on the following mortgage immediately after the 60th monthly payment is
made.
Face Value: $55,000
Interest Rate: 15% per annum, compounded semi-annually
Amortization Period: 25 years

(1) $53,387.48
(2) $53,424.16
(3) $39,510.01
(4) $53,386.61

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 MATH CLASS 2
13. A mortgage with a face value of $288,000 and a contract rate of interest rate of 4.2% per annum,
compounded monthly calls for monthly payments of $1,780. What is the outstanding balance immediately
after the 40th monthly payment has been made?
(1) $245,223.45
(2) $254,915.90
(3) $224,654.84
(4) $232,919.53

14. A mortgage loan created five years ago, was originally in the amount of $25,500. The contract called for
interest at the rate of 9% per annum, compounded semi-annually and constant monthly payments of
$219.39. Calculate the outstanding balance due immediately after the 36th and the 60th monthly payments
have been made.
(1) $23,550.43; $23,480.78
(2) $24,201.56; $23,124.56
(3) $24,540.22; $23,744.14
(4) $24,201.56; $23,992.19

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 MATH CLASS 2
15. Steel Developments is contemplating the construction of a large residential building. They have been
guaranteed financing by their bank in the amount of $1,500,000. The terms of the financing are J2 = 9.75%
with a 20-year amortization period, 5-year term, and monthly payments. Steel believes that if market
conditions are favourable, they will sell the building when it is completed, 2 years from now. Calculate how
much the principal of the loan will have been reduced at the end of the two-year construction period.
(1) 1,444,928.07
(2) 1,646,079.00
(3) 146,079.00
(4) 55,071.92

MATH FORMULAS AND SOLVING TIPS:

To decide when to do an NPEPN:
1) No Payments to be made NO NPEPN
2) Payment freq = Compounding freq NO NPEPN
3) Payment freq ≠ Compounding Freq NPEPN NEEDED

OSB and PR - outstanding balance and principal reduction

OSB - Two steps:

1) Find PMT, round it up and plug it back in
2) Apply Term Nuggets + Fries ?#N FV (OSB)

PR - Three steps:
1) Find PMT, round it up and plug it back in
2) Apply Term Nuggets + Fries ?#N FV (OSB)

3) PR = PV – OSB or
3) Add PV (to negative OSB amount in calculator)
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