We recommend you read the notes below before you use this spreadsheet.
We also recommend you print this page and refer to it as you use this spreadsheet.
Enter the amounts highlighted in yellow.
You can change the mortgage multiplier, safe LTV rate and interest rate multipliers if you wish. These are highlighted in red.
These multipliers are designed to allow the sophisticated
investor change their loan parameters. But it is
perfectly fine to leave them alone.
WHAT THE MULTIPLIERS MEAN
Allowing for giving second mortgages (mortgage multiplier)
We do NOT recommend originating second mortgages. But there are times when it might be attractive.
Here's how to minimize your risk.
First you need to calculate the TOTAL mortgage you would give on this property.
From this of course you need to subtract the amount of the first mortgage.
But we recommend being a little more conservative than this. We multiply this first mortgage amount by 1.5
to provide a safety zone if we have to make the first mortgages payments whle foreclosing the mortgage.
Example:
Assume the property would qualify for a total mortgage of $80,000, If this was a first mortgage.
BUT the borrower is getting or already has a first mortgage of $30,000. Would you want to lend the difference, that is $50,000?
We think not. Instead we multiply the first mortgage amount, $30,000, by 1.5. This is $45,000. NOW subtract
$45,000 from $80,000 to get the amount you should loan. That is, loan $35,000.
Want to be more conservative about writing behind a first mortgage? Then increase the multiplier from 1.5.
Want to be less conservative about writing behind a first mortgage? Then reduce the multiplier from 1.5.But it should NEVER be less than 1.0.
Or just DON"T make second mortgages!
Loan to Value Ratio multipliers
CREDIT HISTORY
We allow a safe LTV for terrible credit of 60%. You can increase or reduce this as you wish.
Want to be more or less conservative about the LTV, perhaps this is commercial or vacant land? Just change the number.
We increase the safe LTV by adding on the 0 to 10 credit rating. You can increase or reduce that if you wish.
For example: If the borrower has a credit rating of 5 we increase the maximum LTV allowed from 60 to 65%.
Want to be more or less conservative about the effect of the credit rating on the LTV? Just change the Multiplier from 1.
Example:
If you set this multiplier at 1.5 then in the above secario you would allow an LTV of 60 + 7.5 = 67.5%.
If you set this multiplier at 0.5 then in the above secario you would allow an LTV of 60 + 2.5 = 62.5%.
DOWN PAYMENT
We also increase the LTV based on the percentage CASH down payment made by the borrower. We feel someone who has
put down, say 20% CASH, is much less likely to walk away from the loan than someone with NO CASH INVESTED.
So if you would loan 65% with zero cash down, we think you should lend 75% with 10% cash down, other things being equal.
Of course, make sure you NEVER loan more than the value of the property.
Interest Rate Multipliers
We reduce the base interest rate from 15% by a multiplier of the credit rating. You can change the base interest rate
and this multiplier.
For this example: if the borrower has perfect credit (10) then we reduce the interest rate from 15% to 10%.
If however you change the Interest Rate Multiplier to 10 then under the same circumstances the interest rate
would only go down from 15% to 14%.
Likewise, if you change the Interest Rate Multiplier to 1, then, under the same circumstances the interest rate
would go down from 15% to 5%.
The interest rate will also go down if the down payment goes up due to the reduced risk to the lender.
The Interest Rate Down Payment Multiplier will control the effect of this.
Lastly, we believe that second mortgages should have a higher interest rates than first mortgage. You can set the amount by how much more.
Remember to always stay within any laws governing predatory lending rates or usury rates!
LEARN how to use this spreadsheet by starting with a 0 prior mortgage (you are then loaning a first mortgage),
keep the base LTV at 60%, credit rating at 0 and the two credit score multipliers as they are set.
Then seen the effect of having a first mortgage balance and of changing the credit rating of the borrower.
Then try different multipliers and see the effect they have.
Fair market value of property:
Balance of existing First mortgage that will remain on property:
Do NOT include mortgage that will be paid off with this new loan
Cash buyer will be putting down
Rate borrower credit from 10 for excellent to 0 for terrible:
How many months to amortize loan over:
(enter 2,000 for interest only)
How many months before loan is paid off:
(the same as above on normal, fully amortizing mortgage loan)
We suggest you loan for a maximum of 120 months = 10 years.
Minimum LTV.
63% safe LTV for worse credit before adding credit rate number. (Max. LTV for 1st 73%)
Base LTV for terrible credit.
Change LTV for good credit.
Multiplier of credit rating for calculation of LTV. (0 for more
conservative up to 2 for riskier)
(0 to 2)
FOR SECONDS.
Multiplier of mortgage that will remain prior to you that you subtract from loan amount
(1 to 3)
Change LTV for down payment.
Add to LTV depending on % cash down
We think it make sense to give a higher LTV to borrowers
who make a decent down payment that those who make a small or
zero down payment.
You should loan.
New mortgage that would be safe to give:
(Go no further if amount is negative)
But you may want to make sure total mortgage (First and Second) not more than price paid for property.
Loan expenses based on Florida USA:
Points:
Title charges:
Government recording fees and taxes:
Misc other charges (e.g. courier fees, doc. prep)
Survey (if needed)
Appraisal (if needed)
TOTAL APPROXIMATE LOAN CHARGES:
NET CASH TO BORROWER:
INTEREST RATE CALCULATIONS
Nominal base interest rate for terrible credit.
Set from 8 to 20%.
(Be aware of Usury laws)
Credit score multiplier to determine interest rate. We use 2.0.
The interest rate should go DOWN for a borrower with better credit.
You can set this multiplier from 1 to 10. A value of 10 will minimize the reduction of interest rate to a borrower with a better credit rating.
A value of 1 will maximize the reduction of interest rate to a borrower with a better credit rating.
Summary. If you CARE about your borrowers credit rating, reduce to 1
If you, the lender, want the same interest rate no
matter how good their credit is, set it to 10.
Down payment multiplier to determine interest rate. We use 2.0.
Can be anything from 1 to 10. A value of 10 will minimize the reduction of interest rate to a borrower with a higher down payment.
A value of 1 will maximize the pro-rata reduction of interest rate to a borrower with a higher down payment.
If you don't care about the down payment made and will
not reduce the interest rate for this, set at 10.
Second mortgages.
Premium interest rate if loan a second mortgage.
The amount by which the interest rate goes up if this is a second mortgage. We use 1.3
Caution. Do not exceed predatory lending law or usury law rates.
Actual interest rate p.a. that you will ask for as a lender.
Monthly payments:
Balloon amount (if any):
Amount financed
Total of payments
Finance charge
Annual Percentage Rate (APR)
For an accurate APR statement use the
APR
calculator used by the government regulators, see our web
site.
This is intended to give you an approximate idea of the size of loan the property can qualify for,
the likely loan charges and the interest rate and monthly payments.
It is not intended as a legally binding offer of financing or loan approval.
It is not intended to replace Federal Truth in Lending or Good Faith Estimate
This spreadsheet is copyright 2004 Mortgage-investments.com, Inc.
It may be used, reproduced and given away free of charge provided it is not
altered in any way and remains intact, including this Copyright notice.
We accept no responsibility for the outcome of any loan you or your clients
make based on the recommendations of this spreadsheet.
Nor do we guarantee the accuracy of the calculations.
