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Discounting Tutorial

AMERICAN EXAMPLE
Discount points, often referred to simply as points, are usually the most significant part of fees charged by lenders or brokers. Each point equals 1% of your loan amount (Balance).

In the USA, the Truth in Lending interest rate is called the APR. For a 30 year loan at 10% plus the three points repaid over the full 30 years, the APR is 10.37% (you enter the 3 points, 3% of $100,000 as $3000 as the Dollar Discount).

(Screenshot 1)

The APR depends upon how long you keep your loan. If the $100,000 loan was repaid after 6 years (72 months) rather than 30 years (360 months) its APR would be 10.70% as shown below.

(Screenshot 2)

 

CANADIAN EXAMPLES
(Same mathematics different explanations)

1. If the current balance of a Canadian mortgage was $149,999.63 and there were 36 months remaining on the term rate of 11% it would cost the borrower $15,440 in order to lower the rate to 7% for the next 36 months. The borrower would change four quarters for a dollar and save nothing if he/she paid the $15,440 "penalty".

2. A Canadian home builder was selling homes for $149,999.63 and taking back the 11% mortgage for 36 months. Sales were slow so he did a buy down calculation. He raised the price of the homes to $165,439.63 and took back the mortgages for 36 months at 7% and sales greatly improved as home buyers were impressed by the low interest rate. The builder received the exact amount of money.

(Screenshot 3)

 

 


VIDEOS

amortizationdotcom Mortgage Calculator for iPhone

Introduction to Canadian and American Mortgages

Seminar on prepaying principal (Part A)

Seminar on prepaying principal (Part B)

Global TV Interview regarding 40 Year Mortgages

 

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