Professional Documents
Culture Documents
Gensan-Sarangani REB
O
O
Debt Financing
Time Value of Money
Cash Flow Analysis
Financing Terminologies
HDMF/PAGIBIG Financing, Principles and Guidelines
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liquidity
O Increases risk of loss of investment capital
O Causes tax driven behaviors
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extending credit
curve
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periods
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Residential vs.
Commercial Lending
OResidential lending:
O Smaller in size
structuring
O Loan terms largely standardized, un-negotiable
O Widely disseminated pricing information
Real Estate Finance by Maya Cartojano REC, REA, REB
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Residential vs.
Commercial Lending
OCommercial Lending
O Dominated by private sources of capital
O A relationship business
O Increasingly influenced by the public
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risk)
O Cost of incremental debt versus additional equity
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Participating Loans
O Lender trades risk for higher potential
returns
flows
O Structured as additional interest
O Total of fixed payment and percentage
interest creates higher total yield on loan
dollars invested
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O Borrower decision:
O What is the incremental cost of borrowing the extra
loan amount, vs. cost of equity?
O If the deal IRR is weighted toward the residual, the
lenders participation in the residual is probably
less than an equity investors would be
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More Alternatives
OLand Sale Leaseback
O Financing land separately from improvements
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More Alternatives
OAccrual Loans
O Pay rate < stated interest rate
O Negative amortization situation
O Tax benefits:
O Creates greater tax shield deductible interest
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More Alternatives
OConvertible Loans
O Lender has an option to convert ie, swap loan
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TYPES OF LOANS
Fixed Rate Mortgages interest is fixed for the
term of the loan. Some fixed for 5-7 years, then
readjusted for the remainder of term.
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FORMS OF MORTGAGES
Conventional Mortgages most common,
secured by RE collateral, available through
bankers, banks and savings & loan institutions.
Usually safe instruments to trade in Secondary
Market for Morgages
Insured Loans include guarantee or insurance
to protect the lender in case of default by the
borrower
Blanket Mortgage secured by group of
properties or number of lots
Real Estate Finance by Maya Cartojano REC, REA, REB
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FORMS OF MORGAGES
Chattel Mortgages loan for personal
property and secured by personal property
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Legal Considerations In
Real Estate Financing
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Possessory Interests
OPossessory (current or potential)
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REAL ESTATE
FINANCING
O SPOT CASH
O DEFERRED CASH PAYMENT
O LONG TERM FINANCING
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SAMPLE COMPUTATIONS
Given:
Actual Value of Property: P1,000,000
Borrower's Equity: 30%
Loanable Amount: 70%
Bank Loan interest: 9.25%
How much monthly amortization?
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DOWNPAYMENT
BALANCE
multiply:
MONTHLY AMORTIZATION
* Factor is usually given in the problem or a factor table is provided.
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SAMPLE COMPUTATIONS
Given:
Actual Value of Property: P1,000,000
Borrower's Equity: 30%
Loanable Amount: 70%
Bank Loan interest: 9.25%
Amortization Factor: .0116637.
How much monthly amortization?
Real Estate Finance by Maya Cartojano REC, REA, REB
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SAMPLE COMPUTATIONS
Given:
Actual Value of Property: P1,000,000
Borrower's Equity: 30%
Loanable Amount: 70%
Bank Loan interest: 9.25%
Amortization Factor: .0116637.
How much monthly amortization?
MONTHLY AMORTIZATION
Contract Price:
less Equity: 30%
Balance
multiply Factor:
Monthly Amortization
= P1,000,000
300,000
700,000
0.0116637
P8,164.59
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Major Topics
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PV = FV / (1+r)
FV = PV (1+r)
PV is the present value
FV is future value
r is the total expected rate of return
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multiple periods:
PV = FV / (1+r)N
FV = PV (1+r)N
N is the number of periods between FV and
PV
If FV and PV are known the rate of return
can be found by the formula:
r = (FV/PV)
1/N
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PV of an Annuity
1 1/(1+r)N
PV = PMT -----------------
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PV of Annuity
For payments in advance the PV formula
changes to:
1 1/(1+r)N
PV = PMT (1+r) --------------r
i/m
i/m
PMT = PV ----------------------------
1 1/(1 + i/m)(Tm)
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Mortgage Constant
MMC is the monthly mortgage constant
It is the monthly payment per dollar of loan and it
includes both interest and principal amortization
--
r
MMC = ---------------1 1/(1+r)N
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1 1/(1 + i/12)(12T-q)
OLB = PMT ---------------------------i/12
(with m=12)
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r
PMT is the annuity paid every month
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Inputs:
PV =
I=
N=
$240,000
8%
360
(Amount of Loan)
(divide by 12)
(30 year loan x 12
months/year)
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Mortgage Pricing
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Refinancing
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