Investor · Dallas, TX · Member since 2012 · 158 posts · 99 votes
TBH Financing confuses me a bit, and I live in a non-disclosure state, so here's what I'm looking for to use in my negotiations:
I'd love if there was a tool that could let me put in the known loan amount, and when that loan was taken out, and have it take into account the average interest rate at that time to give me an *approximate* remaining loan balance. Is there something like this out there that I'm unaware of?
Grant you can calculate a loan balance if you know the terms of the loan. If you know the original loan amount, interest rate, amortization and term you should be able to solve for current loan amount. That will only produce a result assume the borrower made all payments along the way in full and there was no modification along the way.
The capacity to figure that out is just a little math. You could create this solution in excel. As a function of purchasing a loan we calculate all of this to check performance indications if performance is not given and to identify any other performance issues during the life of the loan.
All that said, you would have to get the information that is need to back solve the equation. Notes are not commonly recorded with the security instrument so the information is not available that much in public record.
I did not follow your parameters in full to better answer your question. What did you mean by "known loan amount"? Original or current? Both can be accommodated though provided you have the other variables.
Interest rate histories can be found on line if just want the prevailing market rate, which obviously may or may not be the one the borrower had.
you can find some of the information that you're after but probably not the part that's the most important. As you're probably aware, the trust deed is a matter of record and would give you the date on the original amount. The note is not recorded and that would give you the interest rate and also the payment amount. I'm personally not aware of some place where you can find all the answers to the questions you have. Good luck. Rich
PS if you could get the noteholder to tell you the start date and the interest rate, it would be a different story.
Grant you can calculate a loan balance if you know the terms of the loan. If you know the original loan amount, interest rate, amortization and term you should be able to solve for current loan amount. That will only produce a result assume the borrower made all payments along the way in full and there was no modification along the way.
The capacity to figure that out is just a little math. You could create this solution in excel. As a function of purchasing a loan we calculate all of this to check performance indications if performance is not given and to identify any other performance issues during the life of the loan.
All that said, you would have to get the information that is need to back solve the equation. Notes are not commonly recorded with the security instrument so the information is not available that much in public record.
I did not follow your parameters in full to better answer your question. What did you mean by "known loan amount"? Original or current? Both can be accommodated though provided you have the other variables.
Interest rate histories can be found on line if just want the prevailing market rate, which obviously may or may not be the one the borrower had.
Rich is correct, you can get it off the deed of trust. Most of my DOT had the following as an example:
That certain promissory note made of even date in the original amount of One Hundred XXXXX ($146,000) bearing interest at 8.125 per cent.
Now, if you get so luck you can obtain the payoff, remember the first payment was probably on the first day of the month if the closing was on th 16th of the month or later and odd days interest was paid and add odd days interest to your expected closing date. I assume a 30 yr. fixed but it may not be.
You can look up the street interest rates for the year it closed in historical interest rates, I imagine, I just know about what rates were in my area for a long period....
Rich makes a good point that it doesn't matter, if it's too time consuming, just make the offer, if you can figure it out quickly, it will tell you in a ball park what they might take.
It will never be accurate if they ever made additional payments to principal and many do, you won't know that. Good luck
Sure, I understand it's not going to be even close to 100% accurate. It would just be nice since, as you guys stated, you can tell the amount of the loan taken out for the house by what the lien is on that house.
Hopefully someone will create a tool that can do all of the math using assumed 30 or 15 year loans, the average street interest rate for that time period the loan was taken, and let you punch in what the loan amount was for to give us what would be owed if the owner had made the minimum payment each month since then. Seems like that would be awfully handy for negotiations.
Grant Kemp, I just told you it has been created, many times over to that extent. The easiest and most widely used application would be Microsoft Excel.
In Excel you can solve for all different variations of the equation with different variables. In functions, look under the finance equations you will see functions such as Rate, PV, NPV, CUMINT, CUMPRNC, NPER...etc, etc.
Example. If you know the original loan balance, number of payments (term) and interest rate you can calculate the loan balance.
Defined:
rate = interest rate per period (if annual divide by 12 ex: 6%/12)
nper = number of payments (amortization not term)
pv = present value (original loan balance)
strart_period & end_period = enter the period number (not date) that you wish to calculate. so if the loan is 2 years old or 24 periods you would enter 1 for start and 24 for end.
Take the result of that function and subtract it from the original loan balance. The result is the current loan balance assuming all payments were made on time and no modification took place.
There is no application out there to pull the information for you but plenty to calculate it for you.
Hopefully someone will create a tool that can do all of the math using assumed 30 or 15 year loans, the average street interest rate for that time period the loan was taken, and let you punch in what the loan amount was for to give us what would be owed if the owner had made the minimum payment each month since then. Seems like that would be awfully handy for negotiations.
You should give yourself the gift of the skill to be able to use a financial calculator. The information you are looking for is rather easy to determine once you're comfortable with the most basic functions of a financial calculator.
Thank you Don. I saw that you said it "could" be done in Excel, but with my admitted lack of knowledge in financing I was not sure how to do it. Thank you for providing specifics on what to put into excel to accomplish this!
You could always ask the seller to provide you a copy of thier most current mortgage statement. Most will object, and you could just inform them that it assists you in analyzing the property, and if they aren't willing to provide it, you understand
I'm finding myself asking similar questions and from your recent podcast relative to this post, it seems that you've found a way to really take the shackles off the "subject to" approach for which this estimate would be useful. In order not be an estimate, you (and I) need many of the variables above to be facts.
Curious if you've found a better way to estimate or if you've found a successful approach to getting the facts (and I know how to calculate). I'm currently screening properties to anticipate whether a bank would even allow the owner to sell the property short vs. heading toward foreclosure with property values moving higher and foreclosure rates moderating (allegedly) to where they have stabilized the falling markets by withholding the onslaught of foreclosures. Now it seems the banks can be more selective in how they handle defaults.
The "Subject To" approach would only be effective if the property hadn't been listed yet, correct?