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To purchase the Qualifier Plus IIx at a 10% discount with free shipping, visit www.calculated.com/nmn. Getting the most from your QUALIFIER PLUS IIX ® Training Workbook Congratulations! With the purchase of your Qualifier Plus IIx you have selected this valuable Workbook. It will guide you keystroke by keystroke as you learn to use your residential real estate calculator and solve common finance problems. The material covers both basic and advanced calculations and procedures. You will constantly find new applications as your experience and skills grow. Use this guide in conjunction with other training materials made available exclusively by Calculated Industries. Visit www.calculated.com. Qualifier Plus IIx Workbook & Training Guide 1 File: 3125-TG_V2.5 • Prod. #2125 • $14.95 Qualifier Plus IIx Workbook & Training Guide 2 TABLE OF CONTENTS Getting Started .....................................................................................................................3 Memory Function/[M+] and [Rcl] ......................................................................................4 Percent Calculations in Real Estate .....................................................................................5 Selecting the Number of Decimal Places Displayed ..........................................................7 Date Math on the Qualifier Plus IIx ...................................................................................8 Payments Per Year — [Set] [÷] ..........................................................................................9 The ―Pro Mode‖ ..................................................................................................................9 Default Settings ...................................................................................................................9 Monthly Payments and Other ―Mortgage Components‖ ..................................................10 Review Exercises #1 ..........................................................................................................14 Sales Price and Down Payment .........................................................................................16 Review Exercises #2 ..........................................................................................................18 Tax and Insurance/PITI Payments ....................................................................................19 Review Exercises #3 ..........................................................................................................22 Amortization and Remaining Balance ...............................................................................23 Review Exercises #4 ..........................................................................................................26 Qualifying on the Qualifier Plus IIx ..................................................................................27 Review Exercises #5 .........................................................................................................35 Misc. R/E Problems — ARMs, APR and Bi-Weekly Loans .............................................35 Review Exercises #6 .........................................................................................................40 Qualifier Plus IIx Workbook & Training Guide 3 GETTING STARTED Here’s a brief introduction to basic operational keys on your calculator: Key Definitions [On/C] If calculator is off, turns power on. If on, a single press clears the last entry while a second press in succession clears non- permanent registers. [On/C] [On/C] Clears non-permanent registers on the calculator. [Off] Turns all power off. The Memory and most financial registers are cleared. [Set] [x] IMPORTANT: This All-Clear (AC) function is designed to fully reset the calculator, clearing all memory registers, and resetting variables (i.e., ARM and Qualifying Ratios) to their initial defaults. NOTE: It’s a good idea to begin each class session with this keystroke. [+] [–] [x] [÷] [=] Arithmetic operation keys; ―chain‖ logic employed. [0] – [9] & [000] Digits used for keying-in numbers. Triple-zero key. [•] Decimal point. [:] Colon key used to enter dates and to separate multi-element values such as Qualifying Ratios. Qualifier Plus IIx Workbook & Training Guide 4 MEMORY FUNCTIONS/[M+] AND [RCL] It is important to first get comfortable with your calculator: The Memory function is a good place to start since it is common to all calculators, but is seldom used. Plus, CI’s standard is somewhat unique, yet one that has been adopted by other, more mainstream manufacturers. (There was a time when a mouse on a PC was considered a fad!) Definitions for Memory Keystrokes [M+] Enters value into accumulating Memory. [Set] [M+] Makes the entry a negative value. [Rcl] [M+] Recalls and displays the current Memory value. [Rcl] [Rcl] Displays and clears the Memory. [Set] [Rcl] Clears Memory without changing the display. [Rcl] [Set] [M+] Allows you to replace the Memory’s contents with the currently displayed value. The Qualifier Plus IIx contains a single independent-user Memory. When the [M+] key is depressed, the displayed value is added to the independent Memory. It is recommended to clear the Memory after the user is through with its contents. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Store value in Memory 50 [M+] 50.00 M Clear calculator again [On/C] [On/C] 0.00 M Recall Memory [Rcl] [M+] 50.00 M Subtract from Memory 10 [Set] [M+] 10.00 M Recall and clear Memory [Rcl] [Rcl] 40.00 Qualifier Plus IIx Workbook & Training Guide 5 PERCENT CALCULATIONS IN REAL ESTATE The Percent [%] function is another seldom used key that has special applications for real estate professionals — especially when figuring a commission amount. The Qualifier Plus IIx’s Percent key may be used for finding a given percentage of a number, or for working Add-on, Discount or Division percent calculations. You must press the Equals [=] key to complete a percent problem. Commission Calculation Straight % EXAMPLE: The commission for the listing office is 3%. If the property sells for $125,500, what is the listing office’s commission? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter sales price 125,500 125,500.00 Multiply by commission % [x] 3 [%] 0.03 Find result [=] 3,765.00 — DO NOT CLEAR CALCULATOR — Taking it one step further: The listing agent works on a 50/50 split with their broker. What is the listing agent’s share of this commission? Steps Keystrokes Display Multiply by 50 percent [x] 50 [%] 0.50 Find final result [=] 1,882.50 Qualifier Plus IIx Workbook & Training Guide 6 Sales Price Reduction – Discount % EXAMPLE: A nervous seller has had her property on the market for just over four months listed at $175,500. Because she is anxious to move into a new home, she wishes to reduce the listing price by 5%. Calculate both the amount of reduction in dollars and the new, lowered listing price. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter listing price 175,500 175,500.00 Subtract 5% [–] 5 [%] 8,775.00 Find final amount [=] 166,725.00 Simple, 1-Year Appreciation — Add-On % EXAMPLE: Properties in your area have been going up in value about 7% per year. If you purchase a $75,000 home today, what would it be worth in a year assuming the same rate of appreciation continues? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter current value 75 [000] 75,000.00 Add 7% [+] 7 [%] 5,250.00 Find final total [=] 80,250.00 Qualifier Plus IIx Workbook & Training Guide 7 SELECTING THE NUMBER OF DECIMAL PLACES DISPLAYED Nearly all financial calculators include a function for setting the ―preferred‖ number of displayed decimal places — typically, the ones sold in the U.S. and Canada fix this to two, as on the Qualifier Plus IIx. To permanently select a number of decimal places other than two, simply press the [Set] key followed by the digit corresponding to the number of decimal places you want to display. This can be done either before or after a calculation. EXAMPLE: 1) To illustrate this feature, enter 5 [÷] 3 [=] 1.67. 2) To see the entire number, press [Set] 8, and the answer, 1.66666667 will display. 3) To reset the decimal places back to two, press [Set] 2 or [Set] [x]. EXAMPLE: You have a loan with an annual rate of interest of 15.5% and you would like to know the periodic interest rate. Keystroke Display [Set] 2 [On/C] 0.00 15.5 [Int] [Int] 1.29 [Set] 3 1.292 [Set] 4 1.2917 [Set] 5 1.29167 [Set] 6 1.291667 Qualifier Plus IIx Workbook & Training Guide 8 DATE MATH ON THE QUALIFIER PLUS IIX Many real estate professionals need to calculate dates, most commonly the expiration date of a listing contract calling for a specified number of days. This is why Date-Math is included on the Qualifier Plus IIx. To enter a date, you use the Colon [:] key as follows: Numerical Month [:], Numerical Day [:], and Numerical Year. The date function, which has a built-in range (from 1960 to 2059) works three ways: (1) Add a number of days to find a future date, (2) subtract number of days from a date to find past date, and (3) find the number of days in between dates. EXAMPLE: If you get a 90-day listing beginning on May 1, 2003, when will it expire? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter month 5 [:] 5.– Enter day 1 [:] 5–1– Enter year 03 5–1–03 Add 90 days [+] 90 [=] 7–30–03 EXAMPLE: An impatient seller says she will give you until the end of June to sell her mansion. She signs the listing agreement on April 15, 2003. How many days is this listing? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter ending month 6 [:] 6.– Enter ending day 30 [:] 6–30– Enter ending year 03 6–30–03 Subtract & enter beg. month [–] 4 [:] 4.– Enter beginning day 15 [:] 4–15 Enter beginning year 03 4–15–03 Find # of days of listing [=] 76.00 Qualifier Plus IIx Workbook & Training Guide 9 PAYMENTS PER YEAR -- [SET] [÷] The Qualifier Plus IIx is set up for 12 payments per year, the most common in residential real estate. However, for loans other than monthly, you can permanently change this setting by pressing [Set] [÷]. For example, a quarterly loan is established by entering 4 [Set] [÷]. To get back to monthly, enter 12 [Set] [÷]. (Note: [Rcl] [÷] will display your current setting.) THE “PRO MODE” Finally, you should be aware of a special mode available to you called the ―Pro Mode.‖ An advanced-user feature, the Pro Mode does two things: (1) It makes entries for Tax, Insurance and Mortgage Insurance permanent — they are not cleared with a Clear or even when the calculator is turned off. (2) It changes the displayed order of results in qualifying, showing the stored, or desired, ratios last rather than first. You access this mode by pressing [Set] [+]: The display will show ―Pro On.‖ To turn it off, simply repeat the sequence — [Set] [+] ―Pro Off.‖ Examples in this workbook assume the Pro Mode is off. DEFAULT SETTING Your calculator includes the following default settings built-in: Payments Per Year 12 Number of Displayed Decimals 2 Qual 1 Ratios 28:36 Qual 2 Ratios 29:41 ARM Ratios (Cap) 1.00:1.00 (0) Month Offset None (i.e., Jan.) Pro Mode “Off” Qualifier Plus IIx Workbook & Training Guide 10 MONTHLY PAYMENTS AND OTHER “MORTGAGE COMPONENTS” No doubt about it, the four keys located directly above the digits — Loan Amount [L/A], Payment [Pmt], Term [Term] and Interest [Int] — are the most important to the real estate user. These are the basis for solving loan problems. Note: For a small percentage of loans (i.e., balloon payment loans), the Future Value [FV] is also used — enter the Remaining Balance as [FV]. Here’s an overview of the four primary ―Mortgage Component Keys‖: [L/A] Loan Amount — The loan (or mortgage) amount; also the present value. [Int] Interest — The annual interest rate in percent. A second press of this key in succession gives you the periodic rate. (Once entered, an interest rate will remain stored in your calculator until you specifically solve for interest, perform an ARM or Bi-Weekly calculation, or execute a full reset.) [Term] Term — Total number of years. A second press in succession gives you the number of periods. (Once entered, a term will remain stored in your calculator until you specifically solve for term, perform an ARM or Bi- Weekly calculation, or execute a full reset — i.e., [Set] [x].) [Pmt] Payment — The payment (principal and interest only) amount per compounding period. Pressed a second time in succession, calculates PITI — including property tax, insurance, mortgage insurance (and expenses, if entered). With the information for any three of the four mortgage components, you may solve for the fourth by simply pressing the key for the unknown component. Known Solve Loan amount, interest rate, term Payment Interest rate, term, payment Loan Amount Term, payment, loan amount Interest Rate Payment, loan amount, interest rate Term Once you have calculated an answer, for example, a payment, you can then change any variable and recompute your new answer without re-entering all the other data. Note: It is a good practice to press [On/C] twice after completing a financial problem to ensure that you have cleared financial registers. Pressing [On/C] twice will not clear [Int] or [Term]. Qualifier Plus IIx Workbook & Training Guide 11 Basic Real Estate Definitions Before continuing, the following is a review of some basic definitions. Amortization: The process of repaying a debt over a set period of time. The repayments include both principal and interest so at the end of the period the balance is zero. Annual Percentage Rate: The interest rate including any discount points and fees paid on a loan and expressed as an annual rate. The A.P.R. is the ―cost of credit‖ on a loan and can be used to give an accurate comparison of programs and rate between lenders. Ratios: Usually expressed as a percentage, they are determined by comparing debt to income. Lenders use these ratios to help determine whether a buyer is qualified for a particular loan amount. Ratios vary greatly based on the type of loan, the down payment amount and the lender being used. Front Ratio: The percentage comparison of a monthly house payment in relationship to gross monthly income. Back Ratio: The percentage comparison of a monthly house payment including debt in relationship to gross monthly income. Debt: An item that must be repaid can fall into two categories. The first is Revolving Debt, such as a line of credit or credit cards. The other is Installment Debt, such as cars, student loans, bank notes, etc. These loans are paid monthly and on contract. Other debt items which may be included in loan qualifying are child care and/or child support. Basic living expenses such as food or health and car insurance are not used. Qualifier Plus IIx Workbook & Training Guide 12 How to Compute a Monthly Payment To find a monthly payment, enter the financial values — Term, Interest and Loan — in any order and then press the [Pmt] key. When the calculator is solving a problem, the word ―run‖ will display and it may take several seconds to display the result, especially for interest calculations. EXAMPLE: Andy and Angela Aikman want to borrow $80,000 for 30 years at 9.75% interest. What will their monthly payment be if they succeed? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter annual Int 9.75 [Int] 9.75 Enter Term in years 30 [Term] 30.00 Enter L/A 80[000] [L/A] 80,000.00 Find monthly Pmt [Pmt] ―run‖ 687.32 Finding a Loan Amount How much could you borrow if the current interest rate were 9.75% on a 30-year term and you could pay $950 each month in payments? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Int 9.75 [Int] 9.75 Enter Term 30 [Term] 30.00 Enter monthly Pmt 950 [Pmt] 950.00 Find L/A [L/A] ―run‖ 110,573.84 Qualifier Plus IIx Workbook & Training Guide 13 Finding the Term of a Loan How long does it take to pay off a loan of $15,000 at 10% interest if you make payments of $200 each month? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter L/A 15[000] [L/A] 15,000.00 Enter Int 10 [Int] 10.00 Enter monthly Pmt 200 [Pmt] 200.00 Find Term in years [Term] ―run‖ 9.85 Finding the Interest Rate of a Loan Find the interest rate on a mortgage where the loan amount is $98,500, the term is 30 years and the payment is $1,150 a month. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter L/A 98,500 [L/A] 98,500.00 Enter Term 30 [Term] 30.00 Enter monthly Pmt 1,150 [Pmt] 1,150.00 Find annual Int [Int] ―run‖ 13.78 Changing Mortgage Variables Set up the problem and solve for payment: Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter L/A 80 [000] [L/A] 80,000.00 Enter Int 10 [Int] 10.00 Enter Term in years 30 [Term] 30.00 Find Pmt [Pmt] ―run‖ 702.06 Enter new Term 20 [Term] 20.00 Find new Pmt [Pmt] ―run‖ 772.02 Enter new Int rate 8.5 [Int] 8.50 Find new Pmt [Pmt] ―run‖ 694.26 Clear calculator [On/C] [On/C] 0.00 Qualifier Plus IIx Workbook & Training Guide 14 REVIEW EXERCISES #1 1. What are the monthly payments on a $75,000 1st trust deed at 11% interest paid over 30 years? ($714.24) 2. Your buyers have made an offer of $175,000 on a 3-bedroom house in the Glen Oaks area of town. If they can obtain a conventional 12.5%, 30-year fixed-rate mortgage on 90% of the purchase price, what will their monthly payment be? (Remember to multiply the $175,000 price to get your actual loan amount.) ($1,680.93) — DO NOT CLEAR CALCULATOR — 3. The same buyers have another house they are considering in the Oak Park area of town. Given the same financing conditions— 30 years at 12.5% — but a loan amount of $145,000, what would their monthly payment be? (1,547.52) 4. A $75,000 condo comes with special “Zero-Down” builder financing. What’s the monthly payment for this 40-year fixed-rate loan at 11.5% interest? ($726.21) — DO NOT CLEAR CALCULATOR — 5. By the time the buyers got through adding a microwave oven, mirrored closet doors, plush carpeting and a stacked washer-dryer unit, the purchase price became $85,000. If they still put nothing down, what’s the monthly P&I payment? ($823.04) 6. A 30-year loan at 10% has a monthly payment of $500, what was the initial loan amount for this mortgage? ($56,975.41) 7. Find the term-length for a $100,000 loan at 10% interest with a monthly payment of $877.57. (30.00 yrs.) Qualifier Plus IIx Workbook & Training Guide 15 REVIEW EXERCISES #1 CONTINUED . . . 8. Here are some skill drills for finding monthly loan payments. You should arrive with the answers (Solution) below. Loan Amt. Ann. Interest Term Payment A. $150,000 11.50% 30 Years Solution B. $125,000 6.95% 15 Years Solution C. $97,500 7.75% 25 Years Solution D. $97,500 7.75% 15 Years Solution E. $250,000 11.75% 30 Years Solution F. $250,000 11.75% 15 Years Solution Solutions A. $1,485.44 B. $1,120.04 C. $736.45 D. $917.74 E. $2,523.52 F. $2,960.33 9. Here is a sample drill for finding and changing various mortgage components. This exercise requires entries for values as noted. Determine solutions (Solve) in sequence. Do not clear calculator. ―What-if!‖ answers are below. Loan Amt. Ann. Interest Term Payment A. $250,000 10.00% 30 Years —Solve— B. (above) (above) 15 Years —Solve— C. (above) 9.00% —Solve— (above) D. $225,000 —Solve— (above) (above) E. (above) (above) 30 Years —Solve— A. $2,193.93 B. $2,686.51 C. 13.35 Yrs D. 11.01% E. $2,144.83 Qualifier Plus IIx Workbook & Training Guide 16 SALES PRICE AND DOWN PAYMENT The Qualifier Plus IIx includes two unique keys to assist with in-the-field real estate calculations: Sales Price [Price] and Down Payment [Dn Pmt]. In conjunction with [L/A], you enter any two and solve for the third. You then can move onto mortgage-component problems such as finding a payment; these keys are especially important for accurate qualifying on the Qualifier Plus IIx. [Price] Stores or calculates the selling price based on a loan amount and down payment. When entered, a sales price will generally not change. [Dn Pmt] Stores (in either percent or dollars) or calculates the down payment based on a loan amount and sales price. Notes on Sales Price and Down Payment (1) Although not strictly required, it is recommended that when using [Price] and/or [Dn Pmt] you first calculate the loan amount (by pressing [L/A]). Once you have calculated the loan amount, enter the two known mortgage components and solve for the unknown. (2) Entered down payment values of less than 100 — i.e., 20 — are considered to be percentages; values of 100 or more are considered to be dollar amounts. (3) Entered sales prices will generally not change as you perform multiple ―what-if‖ solutions. You can override the dominance of an entered sales price by preceding the entry of a subsequent down payment or loan amount with the [Set] key. This allows you to purposefully alter an entered sales price. Sales Price and Down Payment — Finding L/A The most common use for these keys, besides their integration with the qualifying keys, is to quickly and simply give you the loan amount based on the sales price of the property and the down payment either in dollars or percent. EXAMPLE: Sheila and Sammy Sanders recently inherited $42,000 from a distant uncle who put the stipulation in his will that this was to be used for a down payment on a home. If the Sanders’ are considering purchasing a $275,000 Colonial in the East Hills neighborhood, how much will they have to borrow, and what percent will they be putting down, with their inheritance? Qualifier Plus IIx Workbook & Training Guide 17 Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter sales Price 275 [000] [Price] 275,000.00 Enter Dn Pmt $ 42 [000] [Dn Pmt] 42,000.00 Find Dn Pmt % [Dn Pmt] 15.27 Find L/A [L/A] 233,000.00 The previous examples dealt strictly with sales price, down payment and loan amount function. While useful, the real benefit of these keys is combining them with the mortgage components for fast, simple answers to more complicated, real-world problems. Sales Price and Down Payment/Finding a Payment Probably the most common finance question in real estate is ―What is my monthly mortgage payment going to be?‖ Couple this with the fact real estate people usually show homes based on prices (and not loan amounts), and you’ll see the real reason Calculated Industries put these handy keys on the Qualifier Plus IIx. EXAMPLE: Sam and Joyce have put in an offer of $125,000 on a two-story, fixer-upper in the West Hills neighborhood. If it’s accepted and they put down 15%, how much will their monthly P&I payment be if they borrow at 10% interest for 30 years? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Price 125 [000] [Price] 125,000.00 Enter Dn Pmt 15 [Dn Pmt] 15.00 Find Dn Pmt in dollars [Dn Pmt] 18,750.00 Find L/A [L/A] 106,250.00 Enter annual Int 10 [Int] 10.00 Enter Term in years 30 [Term] 30.00 Find monthly Pmt [Pmt] ―run‖ 932.42 Qualifier Plus IIx Workbook & Training Guide 18 REVIEW EXERCISES #2 1. Wally and Marcie are going to purchase a $255,000 PUD (planned unit development) in Rolling Ridge. If they put 25% down, find their loan amount and down payment amount. (L/A $191,250; DP $63,750) 2. Bill and Rita Smith recently won a $25,000 consolation prize from Publisher’s Clearing House. If they use this as their down payment on a $212,000 Cape Cod home, what’s their loan amount and down payment in percent? (L/A $187,000; DP 11.79%) 3. Sam and Diane are buying a $215,000 split-level home in the Hidden Hills area. If they borrow $172,500, how much will they need to put down in dollars as well as percent? (DP $42,500; DP% 19.77%) 4. The Dexters have qualified for a $175,000 loan. If they plan to put 15% down, what price homes should they look at, and how much (in dollars) must they put down? (Price $205,882.35; DP $30,882.35) 5. Tina and Bill Gurney planned to put 20% down on a $325,000 ranch-style house in Hampton’s Ranch area. Unfortunately, they only have $50,000 to actually commit to the down payment. Find the amount of money needed for a 20% down payment, then find the percent down and loan amount when they instead put the $50,000 down. (Original DP $65,000.00; DP% 15.38%; L/A $275,000) Qualifier Plus IIx Workbook & Training Guide 19 TAX AND INSURANCE/PITI PAYMENTS Your calculator includes a built-in, temporarily-stored tax and insurance function to allow you to compute a PITI (Principal, Interest, Taxes & Insurance) payment. This is accomplished with a second press — in succession — of the [Pmt] key. (Note: If you are operating your calculator with the “Pro Mode” on, Tax, Insurance and Mortgage Insurance will be permanently stored. Key Definitions for Tax and Insurance Keystrokes [Tax] Property Tax — Stores and recalls annual property tax in either percent or dollar amount. Calculation is based on the sales price. [Ins] Property Insurance — Stores and recalls annual property insurance in either percent or dollar amount. Calculation is based on the sales price. [Mtg Ins] Mortgage Insurance — Stores and recalls annual mortgage insurance (i.e., PMI) in either percent or dollar amount. Calculation is based on the loan amount. [Exp] Expense — Enters monthly housing expenses (i.e., homeowners’ association dues, maintenance and utilities). All [Exp] entries are assumed to be dollar amounts, and are included in the PITI calculation. FOR THE FOLLOWING KEYS: (1) An amount entered as a dollar amount will be converted to an annual percentage rate by pressing the key a second time in succession. (2) An amount entered as a percentage will be converted to an annual dollar amount by pressing the key a second time in succession. (3) Entering the number 10 or less is assumed to be an annual percentage. Qualifier Plus IIx Workbook & Training Guide 20 Notes on Tax & Insurance (1) Once entered, tax and insurance values are maintained in temporary memory. That is, they will not remain stored if you clear your calculator ([On/C] [On/C]) or your calculator is turned off, unless operating in the ―Pro Mode.‖ (2) If you have stored tax and insurance values, answers will be based on full PITI payments. Therefore, payment and qualifying solutions may differ from those in this book, the User’s Guide and even the problem shown on the back panel of calculator. (3) Both tax and property insurance percentages are based on annual sales price. If neither sales price nor down payment has been entered, the sales price is defaulted to equal the loan amount (assuming a 100% loan), in which case the tax and insurance rates are based on the loan amount value entered. Mortgage insurance is based on loan amount. (4) Expense [Exp] key entries are included in the PITI calculation. Entering Tax and Insurance Rates/Amounts Enter and temporarily store the following tax and insurance values: Property Tax Rate 1.0% Property Insurance Rate $500/year Mortgage Insurance Rate 0.15% Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Set tax rate 1 [Tax] 1.00 Set property insurance amt 500 [Ins] 500.00 Set mortgage insurance rate .15 [Mtg Ins] 0.15 — DO NOT CLEAR CALCULATOR — Qualifier Plus IIx Workbook & Training Guide 21 Recalling Tax and Insurance Rates/Amounts You recall your tax and insurance entries by pressing [Rcl] followed by the [Tax], [Ins] or [Mtg Ins] keys. EXAMPLE: Recall the tax and insurance rates entered above: Steps Keystrokes Display Recall tax rate [Rcl] [Tax] 1.00 Recall property Ins amt [Rcl] [Ins] 500.00 Recall Mtg Ins rate [Rcl] [Mtg Ins] 0.15 P&I and PITI Payments Solving PITI is as simple as pressing the Payment [Pmt] key a second time in succession ([Pmt] [Pmt]), once you have stored the tax and insurance rates. EXAMPLE: The Morrisses are considering the purchase of a new home with a selling price of $125,000. They can obtain an 80% first mortgage (20% down payment — no PMI) at 8% for 30 years. Annual property taxes are $750 of the selling price and the homeowners’ insurance premium is estimated at 0.25% annually. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Set Tax amt 750 [Tax] 750.00 Set property Ins rate .25 [Ins] 0.25 Enter annual Int 8 [Int] 8.00 Enter Term in years 30 [Term] 30.00 Enter sales Price 125[000] [Price] 125,000.00 Enter Dn Pmt 20 [Dn Pmt] 20.00 Find P&I Pmt [Pmt] ―run‖ 733.76 Find PITI Pmt [Pmt] 822.31 Qualifier Plus IIx Workbook & Training Guide 22 REVIEW EXERCISES #3 1. Jerry and Denise borrowed $100,000 on their $120,000 home at 10% interest over 30 years. If tax is 1% and property insurance is 0.5%, find their monthly P&I and PITI payments. ($877.57; $1,027.57) 2. Change their term to 15 years and again find their monthly P&I and PITI payments. ($1,074.61; $1,224.61) 3. Find the P&I and PITI payment on a $200,000 home if tax and property insurance are 1.25% and 0.25%, respectively, and the mortgage insurance is .15%. The down payment is 20% with the interest at 10% on a 30-year loan. ($1,404.11; $1,674.11) — DO NOT CLEAR CALCULATOR — 4. If the down payment is changed to 10%, find the new P&I and PITI payments. ($1,579.63; $1,852.13) 5. John and Lisa have annual property taxes of $1,050 and their property insurance premium is $350 annually. Their monthly payment includes mortgage insurance which is .35% since they only put 5% down. What is their P&I and PITI payment on their $75,000 condo financed over 30 years at 11.5% interest? ($705.58; $843.03) 6. Tax is 1%, property insurance is $500 and mortgage insurance is 0.5%. If Jack Johnson puts 10% down on a $157,000 home and finances the balance over 30 years at 11% interest, what are his P&I and PITI payments? ($1,345.63; $1,577.01) Qualifier Plus IIx Workbook & Training Guide 23 AMORTIZATION AND REMAINING BALANCE Key Definitions for Amortization Keystrokes [Amort] Amortization — Finds total interest, principal and remaining balance. First press enters or shows range of periods. Second press shows total interest for period range, third press shows total principal for range, and final press gives remaining balance at end of range. [:] Colon — Used to specify a range for amortization or to separate ARM Int: Term and Qualifying Income: Debt ratios entries. Also used to separate values in a date entry. [Set] [Amort] Remaining Balance — Displays the Remaining Balance when preceded by a single year or range of years (or individual payment or range of payments by also using the [Per] key). Note that you also see the Remaining Balance by pressing through the cycle of the [Amort] key. The amortization function on your calculator is quick and simple. It allows you to find total interest and principal (and remaining balance) for (1) an entire loan, (2) any individual payment or individual year, or (3) any range of payments or range of years, for fully or partially amortized loans. Qualifier Plus IIx Workbook & Training Guide 24 Notes on Amortization/Remaining Balance 1. When you enter a range of payments using the Colon [:] key, you can find all three possible outputs — Interest, Principal and Remaining Balance — without having to re- enter the range each time. 2. You can also find Remaining Balance directly using the [Set] [Amort] keys by specifying a year or range of years, period or range of periods. 3. Entered ranges are inclusive: i.e., a range of 1 to 5 would include both year 1 and year 5. 4. It is always best to specify a range of payments or individual payment before you calculate any of the above. Entering a numerical value or performing a math operation on the keyboard will alter the values (including the default settings) for range of payments calculations. 5. In some cases, it is the practice to include a final, regular P&I payment with the ―balloon payment.‖ This calculator will not include that in its internal calculation of remaining balance; it only displays the actual principal balance remaining. 6. If the first payment of a loan begins in a month other than January, you can set that month by using the Month Offset function. The default for this setting is 1 (for January). To change the start month, press the month number, then the [Set] and [:] keys. This allows you to calculate the correct number of periods in the amortization range. Total Principal/Total Interest for a Loan How much total interest will you pay on a $200,000 loan at 9.25% interest over 30 years? Steps Keystrokes Display Turn calculator off then on [Off] [On/C] 0.00 Enter L/A 200[000] [L/A] 200,000.00 Enter Int 9.25 [Int] 9.25 Enter Term 30 [Term] 30.00 Find monthly Pmt [Pmt] ―run‖ 1,645.35 Find total no. of Pmts [Amort] ―run‖ 1-360 Find total Int paid [Amort] 392,326.31 Find total Principal paid [Amort] 200,000.00 Qualifier Plus IIx Workbook & Training Guide 25 Total Principal/Total Interest for an Individual Year or a Specific Payment How much total interest and total principal will you pay on a 30-year, $75,000 loan at 9.75% interest during the second year, and how much interest will you pay in the 84th periodic payment? (First find monthly payment to ―set-up‖ this loan.) Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter L/A 75[000] [L/A] 75,000.00 Enter Int 9.75 [Int] 9.75 Enter Term 30 [Term] 30.00 Find monthly Pmt [Pmt] ―run‖ 644.37 Enter Year 2 2 [Amort] ―run‖ 13-24 Find total Int in Year 2 [Amort] 7,248.43 Find total Princ in Year 2 [Amort] 483.96 Find Int paid in 84th Pmt 84 [Per] [Amort] 84-84 Press again for answer [Amort] 575.87 Find a Balloon Payment/Remaining Balance To find the remaining balance or ―balloon payment‖ directly, simply press [Set] [Amort]. This will by-pass the other amortization displays. EXAMPLE: Jim and Janet Jacobs were enticed by the low rate — 6.5% — their mortgage broker quoted them on a 30-year, $280,000 jumbo loan due in 7 years. Find first the Jacobs’ monthly payment and then the amount they’ll owe after 7 years. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Term in years 30 [Term] 30.00 Enter annual Int 6.5 [Int] 6.50 Enter L/A 280[000] [L/A] 280,000.00 Find monthly Pmt [Pmt] ―run‖ 1,769.79 Find remaining balance 7 [Set] [Amort] ―run‖ 253,165.49 Qualifier Plus IIx Workbook & Training Guide 26 REVIEW EXERCISES #4 1. What is the total interest and total principal paid for a 30-year, $97,500 mortgage, paid monthly, which has a 9.25% interest rate? (Int. $191,259.07; Prin. $97,500) 2. Find the interest and principal paid for the first full year of a $101,000, 30-year mortgage with an 11% interest rate. What is the remaining balance at the end of the first year? (Int. $11,087.53; Prin. $454.63; Rem. Bal. $100,545.37) — DO NOT CLEAR CALCULATOR — 3. Find the interest and principal paid for the first monthly payment on the same loan above — $101,000, 11% interest, 30 years. (Int. $925.83; Prin. $36.01) 4. Find the amount of interest and principal paid at payment 12 of an $85,000 mortgage paid monthly over 25 years with a 10.5% interest rate. (Int. $737.84; Prin. $64.72) 5. What is the amount of interest paid in total during the first 4 years of a $225,000, 9.25%, 30-year mortgage? ($82,104.76) — DO NOT CLEAR CALCULATOR — 6. Using the same information given in the problem above, compute how much principal is paid in the first 4 years and what is the remaining balance at the end of year 4. (Prin. $6,744.19; Rem. Bal. $218,255.81) 7. Find the total balloon payment — remaining balance plus the final P&I payment — on a $365,000 mortgage at 12% interest amortized over 30 years, but due in 5 years. ($356,470.75) Qualifier Plus IIx Workbook & Training Guide 27 QUALIFYING ON THE QUALIFIER PLUS IIX Perhaps the most exciting feature on the Qualifier Plus IIx is the section of the calculator dedicated to qualifying. With the eight keys — [Inc], [Debt], [Exp], [Qual 1], [Qual 2], [Tax], [Ins], and [Mtg Ins] — you may qualify prospective buyers using the factors which typically determine the success or failure of obtaining real estate financing. These factors are: 1. Principal 2. Interest 3. Taxes 4. Insurance 5. Private Mortgage Insurance (PMI) 6. Other recurring housing expenses _(i.e., homeowners association dues) 7. Income and long-term debts of the borrower(s). Income and Debt Qualifying Ratios — What Are They? When qualifying prospects for residential real estate loans, lenders typically use two key qualifying ratios: the income ratio and the debt ratio. Briefly, the income ratio translates to the allowable percentage of income for the total housing payment. And the debt ratio is the allowable percentage of income for the total housing expense and long-term debts (usually 10-12 months, or longer). INCOME RATIO TOTAL HOUSING EXPENSE GROSS MONTHLY INCOME DEBT RATIO TOTAL HOUSING EXPENSES + DEBTS GROSS MONTHLY INCOME When figuring government loans (FHA/VA), these formulas are typically modified — that is, estimated expenses for maintenance and utilities are added to the ―above the line‖ total housing expense on both ratios. Qualifier Plus IIx Workbook & Training Guide 28 Introduction to the Qualifying Keys There are a total of five keys in the qualifying program on the Qualifier Plus IIx. These keys also integrate with the Mortgage Component keys, Tax, Insurance and Mortgage Insurance, and Sales Price/Down Payment. Key Definitions for Qualifying Keystrokes [Inc] Enters or calculates a buyer’s annual income. Preceding an entry with [Per] allows you to enter the monthly income and have the Qualifier Plus IIx automatically multiply it by 12 to find the annual income. [Debt] Enters a buyer’s monthly debts used for the debt ratio qualifying calculation. Entered debts are not included in the total payment calculation. [Exp] Enters other monthly housing-related fixed-dollar expenses, such as utilities or homeowners’ association dues. Entered expenses are included both in qualifying and in the total payment calculation. [Qual 1] Works in four ways: (1) first press displays the stored income and debt qualifying ratios (default values 28%/36%) to find the maximum loan amount or income for which buyers can qualify; (2) finds the qualifying loan amount, given income (second press), (3) finds the qualifying income with the second press, and with the third press finds allowable monthly debt given price or loan amount, and (4) finds buyers’ actual ratios given the entries of both income and loan amount. [Qual 2] Stores Additional (i.e., Gov’t FHA/VA) income and debt ratios. This key operates identically to [Qual 1]. Default qualifying ratios are 29% income and 41% debt. Qualifier Plus IIx Workbook & Training Guide 29 Notes on Loan Qualifying 1. Tax and insurnce percentages are computed for qualifying based on sales price. It is, therefore, recommended that you enter a down payent (either percent or fixed dollar). 2. Once you have set up a qualifying situation you may change the ratios or other factors to perform ―what-if‖ simulations. 3. After successfully calculating an answer, make certain the calculator is cleared before attempting another calculation. 4. Real estate financing methods and qualifying techniques – differ from region to region and with the marketplace. Moreover, lenders take into account other factors such as credit history and employment status when determining amounts they will lend to prospective borrowers. As with any calculation which ultimately affects your professional stature, make certain you have investigated the financing methods and techniques common to your area before advising your clients on a course of action with regard to the purchase of their home. Entering and Storing Qualifying Ratios Qualifying ratios are entered using the Colon [:] key which separates the income qualifying percentage (the value to the left of the colon) from the debt qualifying percentage (the value to the right of the colon). EXAMPLE: Enter and permanently store an income ratio of 25% and a debt ratio of 33% in [Qual 1]: Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Set Qual ratios w/[Set] 25 [:] 33 25.-33. [Set] [Qual 1] 25.00-33.00 Optional—but not recommended: Set Qual ratios without [Set] 25 [:] 33 [Qual 1] 25.00-33.00 Qualifier Plus IIx Workbook & Training Guide 30 Recalling Stored Qualifying Ratios You recall your stored qualifying ratios by simply pressing the [Qual 1] or [Qual 2] key. However, the preferred method is to press [Rcl] then press [Qual 1] or [Qual 2]. EXAMPLE: Recall the qualifying ratios entered above: Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Recall Qual ratios* [Qual 1] 25.00–33.00 Recall Qual ratios [Rcl] [Qual 2] 29.00–41.00 *If you did not store the ratios in the previous example, your answer will differ. Changing Qualifying Ratios There will often be times when you will want to change ratios. This can be done without having to clear other loan or buyer information — i.e., to qualify a buyer for different kinds of loans. Changing qualifying ratios is nothing more than entering new ratios over the existing, stored ratios; there is no need to separately clear the previously-stored ratios. EXAMPLE: Change [Qual 1] and [Qual 2] back to their default ratios of 28%/36% and 29%/41%, respectively. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Set new Qual ratios 28 [:] 36 [Qual 1] 28.00-36.00 Set new Qual ratios 29 [:] 41 [Qual 2] 29.00-41.00 Clearing Qualifying Ratios There is never a reason to clear qualifying ratios in your calculator. Reset new ratios, yes. But clear them to 0%/-0%, never! Even when you perform a full reset, the qualifying ratios are set to their default values of 28%/36% for the [Qual 1] key and 29%/41% for the [Qual 2] key. Qualifier Plus IIx Workbook & Training Guide 31 Finding Qualifying Loan Amount — Simple Case Without Tax & Insurance Probably the most common of the three qualifying applications is finding the maximum loan amount available to prospective buyers given their income and debts, lending conditions (i.e., term and interest) and qualifying ratios. Here we’ll illustrate the simple case where tax, insurance and mortgage insurance percentages are not considered. Rather, an estimated amount for these will be stored as ―expenses.‖ EXAMPLE: Mark and Marlene Crenshaw have an annual income of $56,000 and monthly debts of $500. For simplicity, use $225 per month in expenses for tax and insurance, rather than storing rates. Using ratios of 25% for income and 33% for debts, what size 30-year loan can they qualify for at 11.5% interest? PART I Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Verify Tax is zero [Rcl] [Tax] 0.00 Verify Ins is zero [Rcl] [Ins] 0.00 Verify Mtg Ins is zero [Rcl] [Mtg Ins] 0.00 Enter Term 30 [Term] 30.00 Enter Int 11.5 [Int] 11.50 PART II Steps Keystrokes Display Enter annual Inc 56[000] [Inc] 56,000.00 Enter monthly Debt 500 [Debt] 500.00 Enter other monthly Exp 225 [Exp] 225.00 Enter Qual ratios 25 [:] 33 [Qual 1] 25.00-33.00 Find Qual L/A [Qual 1] ―run‖ 82,299.01 — DO NOT CLEAR CALCULATOR — Qualifying ratios of 25% and 33% are rather stringent. Without re-entering any of the data, for what loan amount can the Crenshaws qualify using 28% and 36%? Qualifier Plus IIx Workbook & Training Guide 32 Steps Keystrokes Display Continuing from previous page . . . Enter new Qual ratios 28 [:] 36 [Qual 1] 28.00-36.00 Find Qual L/A [Qual 1] ―run‖ 96,436.26 Finding Qualifying Loan Amount — Including Tax & Insurance The previous example showed a simplified case of qualifying where tax and insurance were not considered. The more accurate method is to store tax, insurance and mortgage insurance rates and to input a down payment (either in dollars or in percent), and then find your qualifying loan amount. Also illustrated in this example is the use of the [Per] key to enter monthly income. IMPORTANT: Do not enter a sales price as the calculator will compute that based on the qualifying loan amount and down payment. EXAMPLE: Chris and Troy Summers earn $4,500 per month and have $850 in monthly debts. If tax and property insurance are 1.5% and 0.25%, respectively, and 30-year loans are at 10%, how much can they qualify for if they put 10% down and lenders use 28%/36% ratios? PART I Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Tax rate 1.5 [Tax] 1.50 Enter property Ins .25 [Ins] .25 Enter Term in years 30 [Term] 30.00 Enter annual Int 10 [Int] 10.00 Enter Dn Pmt 10 [Dn Pmt] 10.00 PART II Steps Keystrokes Display Enter monthly Inc 4,500 [Per] [Inc] 4,500.00 Find annual Inc [Inc] 54,000.00 Enter monthly Debt 850 [Debt] 850.00 Enter Qual ratios 28 [:] 36 [Qual 1] 28.00-36.00 Find Qual L/A [Qual 1] ―run‖ 74,066.34 — DO NOT CLEAR CALCULATOR — Qualifier Plus IIx Workbook & Training Guide 33 EXAMPLE: Chris and Troy will also have mortgage insurance of .5%. Find their new qualifying loan amount. Steps Keystrokes Display Continuing from above . . . Enter Mtg Ins .5 [Mtg Ins] 0.50 Recall Qual ratios [Qual 1] 28.00- 36.00 Find Qual L/A [Qual 1] 71,212.21 — DO NOT CLEAR CALCULATOR — EXAMPLE: Now change the order of the qualifying display using the ―Pro Mode.‖ (See pg. 11 for definition and more information.) Steps Keystrokes Display Continuing from above . . . Set the Pro Mode ―on‖ [Set] [+] Pr0 0n Find Qual L/A [Qual 1] 71,212.21 Find non-restricting L/A [Qual 1] – 116,529.07 Display actual Qual ratios [Qual 1] 17.11-36.00 Display stored ratios [Qual 1] 28.00-36.00 IMPORTANT: Be sure to turn the “Pro Mode” off before continuing to other problems. To do this press [Set] [+]. The display will show Pr0 0FF. Finding Income Required — ―Reverse‖ Qualifying There will be times when you need to ―reverse qualify.‖ That is, find the amount of income required for a particular sales price. A term, interest rate and down payment must be entered to complete this problem. Tax and insurance may also be used. In this example, we’ll use only tax. EXAMPLE: Al and Meg Bandey are looking at a $250,000 home. They want to put 20% down on a 30-year loan at 8%. If tax is 1% and their lender uses 28%/36% ratios, how much annual income is required for them to qualify for this loan? Qualifier Plus IIx Workbook & Training Guide 34 Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter sales Price 250[000] [Price] 250,000.00 Enter Dn Pmt 20 [Dn Pmt] 20.00 Enter Tax rate 1 [Tax] 1.00 Enter Term in years 30 [Term] 30.00 Enter annual Int rate 8 [Int] 8.00 Display Qual ratios [Qual 1] 28.00-36.00 Find Qual income required [Qual 1] 71,822.68 Finding Actual Qualifying Ratios — Given Both Borrower and Property Data Another way to qualify a buyer is by ―Ratio Qualifying.‖ By entering the buyer information along with the specific property information, you can calculate what ratios your buyers achieve in a particular situation. To solve for the actual ratios, the [Qual 1] or [Qual 2] keys must be pressed twice in succession. Remember that the first price recalls the currently stored ratios. Additional presses will toggle back and forth between the stored and the calculated ratios. EXAMPLE: Rob and Liz Doleson earn $142,000 annually and have long-term monthly debts of $1,500. If they borrow $225,000 for 15 years at 8.75% interest, what are the actual ratios achieved — exclusive of any tax and insurance? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Term in years 15 [Term] 15.00 Enter annual Int rate 8.75 [Int] 8.75 Enter L/A 225[000] [L/A] 225,000.00 Enter annual Inc 142[000] [Inc] 142,000.00 Enter monthly Debt 1,500 [Debt] 1,500.00 Recall stored ratios [Qual 1] 28.00-36.00 Find actual ratios [Qual 1] 19.00-31.68 Qualifier Plus IIx Workbook & Training Guide 35 REVIEW EXERCISES #5 1. Find the qualifying loan amount for a 30-year conventional mortgage at 10.25% interest if the income qualifying ratio for this loan is 25%, the debt qualifying ratio is 33%, the buyers have combined incomes of $42,000, debts of $500 per month, estimated monthly tax and insurance of $300, entered as expenses. (Be sure your tax and insurance ratios are both 0% for this problem.) ($39,616.06) 2. Using the same qualifying ratios of 25%/33%, what is the maximum amount your buyers can qualify for if the term of the mortgage is 30 years, the interest rate is 11.5%, their combined income is $72,000, their debt is $1,000 per month and expected monthly tax and insurance for the property is $250? (Again, since you will enter a dollar amount into expenses, be sure tax and insurance ratios are both 0% for this problem.) ($73,715.67) 3. Your new clients have an annual income of $67,000 and monthly debts of $750. Using a 28% income ratio and 36% debt ratio, what is the maximum amount for which these buyers can qualify on a 30-year mortgage at 9% if tax and property insurance rates are 1.25% and 0.25%, respectively? ($135,538.87) MISC. REAL ESTATE PROBLEMS — ARMS, APR & BI-WEEKLY LOANS This section will detail three of the lesser-used, yet still valuable functions of the Qualifier Plus IIx: (1) ARMs, (2) APR and (3) Bi-Weekly loans. Adjustable Rate Mortgages — [ARM] The Qualifier Plus IIx enables you to find the solutions to most ARM calculations. If you know the interest adjustment and the term adjustment, you can answer your clients’ questions about adjustable rate mortgages with speed and ease. The ARM function consists of a single key — [ARM] — which works in conjunction with the Colon [:] key (and [Set] [%] for establishing a life-time cap). Qualifier Plus IIx Workbook & Training Guide 36 Entering and Storing ARM Variables ARM variables are entered using the Colon [:] key and the [ARM] key, with [Set] being utilized to change the direction of the ARM — that is, changing an increasing ARM to decreasing or decreasing ARM to increasing. The Colon [:] key separates the annual interest percent adjustment (the value to the left of the colon) from the annual term adjustment (the value to the right of the colon). Lifetime cap is entered using the [Set] key followed by [%]. EXAMPLE: Enter and permanently store the following ARM variables: Annual ARM Interest Adjustment 1.5% Annual ARM Term Adjustment 1 Year Lifetime Cap 5% Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Set ARM variables 1.5 [:] 1 [ARM] 1.50- 1.00 Set Cap (above initial int.) 5 [Set] [%] CAP 5.00 Recalling Stored ARM Variables You recall your stored ARM variables by simply pressing the [ARM] key. However, the preferred method would be [Rcl] [ARM]. EXAMPLE: Recall the stored ARM variables from the previous example. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Recall ARM variables [Rcl] [ARM] 1.50- 1.00 Recall Cap [Rcl] [%] CAP 5.00 Changing ARM Variables There will often be times when you will want to change your ARM variables. To do so, you simply enter new variables over the existing, stored ones; there is no need to separately clear the previously-stored variables. Qualifier Plus IIx Workbook & Training Guide 37 EXAMPLE: Change the ARM variables to 1% interest adjustment for 1 year: Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Set ARM variables 1 [:] 1 [ARM] 1.00- 1.00 Increasing ARM Payments The most common application for the ARM function is to find the ―worst case‖ scenario — that is, solving the payment if the interest increases the maximum at each increment. EXAMPLE: Your clients, Andrew and Anita Adams, would like to know, what a ―worst- case‖ adjustable rate mortgage payment would be in the first 3 years. If the mortgage is calculated over a 30-year term beginning at 10.75% interest, and increases at no more than 1% per year, what will their payment be for each of the first three years if the loan amount is $125,000? Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Term 30 [Term] 30.00 Enter annual Int 10.75 [Int] 10.75 Enter L/A 125[000] [L/A] 125,000.00 Find initial Pmt [Pmt] ―run‖ 1,166.85 Enter ARM adjustments 1 [:] 1 [ARM] 1.00 – 1.00 Find payment for Year 2 [ARM] ―run‖ 1,260.60 Find payment for Year 3 [ARM] ―run‖ 1,354.98 Calculating an Adjustable Rate Mortgage With a Decreasing Interest Rate Illustrating the worst-case on an ARM is useful, but one of the main reasons people take out ARM loans is in the hope that interest rates will decline and their payment will go down. EXAMPLE: You would like to compute the monthly payment for an adjustable rate 30-year mortgage which has an adjustment period of every 6 months with an interest cap of 1.5% per each 6-month period. The beginning interest rate is 6.75% and the loan amount is $110,000. First find the initial monthly payment, then compute the decreased payment after the first two adjustments. Qualifier Plus IIx Workbook & Training Guide 38 Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Term in years 30 [Term] 30.00 Enter annual Int 6.75 [Int] 6.75 Enter L/A 110[000] [L/A] 110,000.00 Find Pmt [Pmt] ―run‖ 713.46 Enter ARM adjustments 1.5 [:] .5 1.5– .5 Indicate decreasing [Set] [ARM] –1.50– 0.50 Find first ―adjusted‖ pmt [ARM] ―run‖ 608.48 Find second ―adjusted‖ pmt [ARM] ―run‖ 512.54 APR — [SET] [INT] In real estate Annual Percentage Rate (APR) generally means the relationship of the principal and interest payment to the net proceeds of a loan: the stated loan amount less non-recurring points and/or fees paid at initiation. In other words if you borrow $100,000 but are required to pay $5,000 in points and fees, you actually only receive $95,000 — yet your payment is computed using the $100,000 amount. This means if you pay 10% interest per year on $100,000, or $10,000, you are actually paying $10,000 on $95,000. This is in fact more than 10% interest. It is 10.62% based upon your net proceeds. The APR key function on the Qualifier Plus IIx discounts the points and fees and then recalculates the interest rate based on the net proceeds of the loan. [Set] [Int] Calculates APR based on the entry of points and/or non-recurring loan fees paid at initiation. Subsequent press of [Int] key calculates total interest over the life of the loan. This includes any points and fees. Press again and the total expense (principal, interest, points and fees) is shown. EXAMPLE: Matt and Kelly Stabler plan to borrow $78,000 for 30 years at 10.50% interest. If they must pay $2,500 in loan establishment fees, what is the APR on this loan? Qualifier Plus IIx Workbook & Training Guide 39 Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter L/A 78[000] [L/A] 78,000.00 Enter Term in years 30 [Term] 30.00 Enter annual Int 10.5 [Int] 10.50 Find Pmt [Pmt] ―run‖ 713.50 Enter fees, find APR 2,500 [Set] [Int] ―run‖ 10.90 Find total Int expense [Int] 181,358.79 Find total expense of loan [Int] 259,358.79 BI-WEEKLY LOANS — [SET] [TERM] A bi-weekly mortgage offers the advantage of paying off a real estate loan more rapidly. This causes a substantial reduction in the amount of interest charged as compared to a standard monthly-payment mortgage. The secret to a bi-weekly is that you pay one half your regular monthly payment every two weeks, resulting in two extra half payments a year, since there are 26 bi-weekly periods compared to 12 monthly periods. [Set] [Term] Converts monthly loans into bi-weekly loans. Plus shows term reduction and interest savings. EXAMPLE: The Smiths plan to borrow $85,000 using a conventional, 30-year monthly loan at 9.75% interest. If they opt for a bi-weekly loan at the same interest rate, what will their new payment be and how long will it take them to pay it off? Note: A second press of [Term], after you have calculated your bi-weekly term, displays the total interest savings. Steps Keystrokes Display Clear calculator [On/C] [On/C] 0.00 Enter Term in years 30 [Term] 30.00 Enter annual Int 9.75 [Int] 9.75 Enter L/A 85[000] [L/A] 85,000.00 Find monthly Pmt [Pmt] ―run‖ 730.28 Find bi-weekly Term [Set] [Term] ―run‖ 21.20 Find total interest savings [Term] ―run‖ -61,630.75 Find bi-weekly Pmt [Pmt] ―run‖ 365.14 Qualifier Plus IIx Workbook & Training Guide 40 REVIEW EXERCISES #6 1. Find the monthly payment for year 2 of an adjustable rate mortgage if the loan originates with a $97,500 loan amount, a 9% interest rate, is written on the basis of 30-year amortization and adjusts 1 percentage point each year starting in year 2. ($853.38) — DO NOT CLEAR CALCULATOR — 2. What is the payment after the second adjustment? ($921.72) 3. How much would a buyer have to pay in monthly payments in years 1, 2 and 3 of an adjustable rate mortgage if the original loan amount is $72,500, the beginning interest rate is 8.25%, and the mortgage increases 1.5% each year of a 30-year mortgage? (Year 1 $544.67; Year 2 $621.58; Year 3 $700.36) 4. Find the APR for a 15-year monthly mortgage if the interest rate is 10.25%, the loan amount is $157,000 and there are 2.5 points. (10.70%) — DO NOT CLEAR CALCULATOR — 5. Without re-entering any data, find the total finance charges for the preceding problem. ($154,945.13) 6. The terms of your clients’ adjustable rate mortgage state that interest rates may be adjusted up to a maximum of 2 percentage points up or down each year. If the loan amount is $93,000 and the beginning interest rate is 11%, what will the monthly payment be for year 2 of this 30-year mortgage if your clients get lucky and the interest rate decreases 2% that year? ($750.06) 7. Find the bi-weekly term and payment for an $82,500 mortgage with a 9.35% interest rate (compared to a 30-year monthly loan). (Term: 21.58 years; Payment: $342.35) 8. What is the bi-weekly term and payment for an $87,500 mortgage with an 11.5% interest rate and a 30-year term? (Term: 19.50 years; Payment: $433.25) Qualifier Plus IIx Workbook & Training Guide 41