Relationship between selling price and listing price
Negotiating Range
Net Amount for Seller
Amount left over after deducing Broker fees and GST+QST
Measuring Living Space
- Basement not included unless situated mostly above ground level
- Includes closets, additional rooms & storage
- Excludes garages, verandas (unless all-season), cold storage rooms, recreational rooms, crawl spaces
Calculate the sales price based on the desired net amount
- Calculate rem rate including taxes as a %
- Calculate net desired by seller as a %
- Calculate sales price in $
Example:
1. Seller wants net $260k:
2. 5% (rem) x 1.14975 = 5.74875%
3. 100% - 5.74875 = 94.25125
4. Rule of 3: 100*260000/94.25125 = $275858.41
I vs i
Interest = I = $, Interest rate = i = %
Compound Interest
FV = PV (1+i%)^n
Nominal Rate
- Rate advertised by banks
- Does not take into account capitalization period
- Standard rate (calculated with c/y = 1)
- Rate most often used in statements
Effective Rate
(real rate / APR)
- Rate actually paid by the borrower
- Takes into account capitalization
Periodic Rate
- rate for the capitalization period
- actual rate that applies to prn due at beginning of each period
- = nominal rate / capitalization (c/y)
Discounting
Determine PV from FV
Calculator Date Program
- 2nd 1(date)
- 2nd CE/C(clr work)
- Enter first date (e.g. 09.2500, enter), September 25 2000
- → input 2nd date, enter
- → cpt gives you the DBD
Possession day rule
Customary to attribute possession day to the buyer, although there is nothing preventing the parties from proceeding otherwise
Calculating adjustments
- First day typically excluded from adjustment calculation
- Calculate DBD and rule of 3
- DBD + 1 to attribute possession day to buyer
Interest Adjustment
- Only when buyer assumes loan
- FV of balance calculated (some amount of days) after last pmt was made
- Difference between FV & PV gives the adjustment
- Seller to buyer, so no need to +1 DBD
Statement of disbursements
- Includes all adjustments made between seller and buyer
- Determine buyer’s final balance
Rules for choosing mortgage loan rate needed for calculation purposes
- Conventional
- Higher of contractual interest rate + 2%, or 5 yr benchmark rate from Bank of Canada (25-30y amort)
- Insured
- 5yr benchmark, 25yr amort
Calculation of Amortization Coefficients
- Gross Debt Service Ratio (GDSR)
- 32% of gross income can go to payment, taxes and heating
- Total Debt Service Ratio (TDSR)
- 40% of gross income can go to payment, taxes, heating and other debts
Calculate Loan Amount based on income
- Verify downpayment and make sure client can pay closing costs another way
- Calculate the debt ratio (this is when you choose the mortgage loan rate as well
- Find maximum monthly pmt using GDS/TDS
- Find max loan amount (PV) using TVM solver
- Determine max amount client can spend on property
a. PV at this stage is not the final amount as it includes the amortized insurance premium (if insured) based on LTV - Consult a mortgage lender
Open vs Closed Mortgage
Open:
- No repayment penalty
- Higher rate
- Shorter term
Closed:
- Repayment penalty
- Lower rate
- Usually 6mo-5yr term
- Most lenders allow additional payments anyway, either in form of double pmt or % of balance owed at a frequency specified in mortgage contract
Advance repayment penalty calculation
Higher of:
1- 3 months of interest on advance repayment amount at contractual rate
2- Interest differential (difference between loan rate and bank’s rate)
- Calculate monthly payment
- Determine balance due at the time of repayment
- Determine the balance at the stipulated term of the agreement
- Update the balance at term and the payments remaining in the stipulated term at the current bank rate
- Subtract balance due at time of advance repayment from PV amountSurface Area Formulas (rectangle+, triangle, trapezoid and circle)
- Square, rectangle or parallelogram
- base x height
- Triangle
- (base x height) /2
- Trapezoid
- (B+b) x height /2
- Circle
- Pi x r^2
- Circumference: 2 x pi x r = D x pi
Pythagorean Formula
c^2 = a^2 + b^2
