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Loan-Payment-Calculator ConceptsUnderstanding intricacies of loan-payment-calculator concepts and amortization schedule (repayment pattern)are keys to success in real estate investing. If you can change the repayment pattern to reduce, defer or even eliminate interest, the cost of the property can be substantially reduced. Standard Amortization Schedule The standard amortization schedule for most loans is for a set period of time, usually 15, 20 or 30 years. A mortgage, however, can be for any time period the borrower and lender agree to. Payments of a mortgage are structured to proportionately pay more interest and less principal during the early years. The ratio reverses as the loan matures. Decrease The Interest Rate To Get A Better Deal It is common knowledge that a lower interest rate will save you money Standard 30-Year Mortgage Mortgage Payment Chart for a loan of $200,000 for 30 years. @6% = Monthly Payment of $1199.10 @5% = Monthly Payment of $1073.64 Reducing the interest rate by 1% will result in an additional monthly cash flow of $125.46 Additionally, by reviewing loan-payment-calculator concepts, restructured financing can turn a marginal deal into an acceptable one. One important real estate investing strategy is to find and purchase property at a discount (i.e. 80% or less of appraised value). When you change conditions and terms in your favor, you gain an additional discount and increase your leverage on the property. Principal Payment Options Obtaining the best terms is a principal loan-payment-calculator concept that is as important as finding the right property. Some of the best real estate deals include creative terms: Low interest rate (below market), or no interest for a period of time, Balloon payments Interest only Principal only payments and many other options can reduce your cost. Loan-payment-calculator concepts in creative financing with the proper use of leverage is important for success in real estate investing. Borrow money at low rates Extend payments Depositing the lowest down payment possible. Control as many properties as reasonably prudent with the least amount of out-of-pocket cash. OPM (Other Peoples Money) sources include - family and friends, investor/partner, bank, seller, or tenant, Structure the deal with the least out of pocket expenses with favorable terms. Balloon Payment Balloon payment defers payment of the principal (the equity or appraised value in the property) until some point in the future. For example, if a seller says they will give you a $50,000 note (second mortgage on the property), requests to have it as a balloon payment in 4 years. You will have no payments for four years. This reduces the ongoing cost of owning the property. The balloon payment may have no interest attached, but will usually have an annual simple interest rate that is paid along with the note at the time of payment. The $50,000 note may have simple interest of 10% to be paid in four years. Therefore, you would pay $55,000 in four years The note could also be 10% simple interest accrued annually due in four years. Thus,you would pay $90,000 ($50,000 plus four $5,000 payments). There are an infinite number of possible variations. Note: Balloon payments are usually part of a complete funding package. For example, a typically structured deal may be: • Assume the first of $50,000 mortgage. • The seller to take back a second mortgage of $20,000 for 10 years at 7% interest rate. • A balloon payment of $30,000 to be paid in four years at no interest. Interest Only Payments An interest only payment method is a creative way of reducing the monthly out-of-pocket expenses of purchasing real estate. The period can be one or more years. The principal remains the same for the agreed upon period and only the interest is paid on the note. You still owe the principal amount which is paid on the established date. Since only the interest is paid monthly, you have low monthly payments. This strategy is typically used if you have a rental property that has a low monthly rent, but plan to gradually increase rent with the tenant optioning to purchase the property when the principal is due. Multiple Options Method Multiple Options can help you finance a property with a low out of pocket expense. If a home owner wants to sell his property to you for $200,000. He owns the property (no mortgages). A no interest option, straight payment of principal over a 30-year period is one method.But multiple variations can be used to reduce initial out of pocket expenses. One variation is to start with a deferred payment plan with simple interest for the first 5 years; 10 years of monthly interest only payments; and the remaining 15 years of regular amortized simple interest loan. It is possible to meet future monthly payment increases by subsequent increases in rent or the option of selling the property. The successful use of loan-payment-calculator concepts will enable you to use no interest, low interest, principal only, interest only, deferred payments, balloon payment and simple interest funding . It is important, however, to remember that monthly payments must be met on time. Sufficient cash flow cushion should be available should any adverse, unforeseen circumstances arise.
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In addition to loan-payment-calculator concept, learn more about real-estate-investment-funding.
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