The apartment building investor should always be aware of the amount of money that he or she has invested in an apartment building and more importantly the “time value” of that money. This concept of money’s value over a period of time becomes extremely important when comparing and contrasting different apartment building finance strategies. For example, the investor may want to evaluate an offer to buy his apartment building by another investor who requires that he offer owner financing. When offering the sale of an apartment building with an owner held note, the seller has to figure out what the value of the mortgage payments, over a specified period of time would be equal to in today’s dollar. The investor/owner must make these calculations so that he or she is able to compare the purchase offer to other offers which differ in terms. To figure out how the time value of money will effect investment returns the apartment building investor must determine what the “present value” and the “future value” of the money invested is and will be.

For example, an investor considering the purchase of an apartment building with an asking price of $1,000,000.00. The investor believes that the property should appreciate by about 5% over the next five years and he wants to figure out what the value of the “future value” of the property will be after five years based on this assumption. Even for the beginning apartment building investor it is important to learn how to make some important mathematical calculations when determining the value of different potential apartment acquisitions.

Scenario: The investor is considering the purchase of an apartment building. The owner is asking $1,000,000.00. The investor expects that the apartment building investment will increase in value by 10% annually. Or, each year the value the apartment building will increase at the anticipated 10% on the principal and on any interest previously earned.

To figure out what the future value of the apartment building property will be, the investor must know the following figures:

Present value =                    $1,000,000.00
Future value (unknown) =           unknown
Return rate=                       10%
Time length=                       3 years
We don’t know the future amount, but we can easily find it.

Let today be time zero, when the apartment building is worth $1,000,000.00

Let’s put this process on a time line to see how the value of the land increases over three years:

0                    1
1,000,000  1,000,000(1+.10)

2                                     3
1,000,000(1+.10)(1+.10)  1,000,000(1+.10)(1+.10)(1+.10)
Thus, the value of the land at the end of year three can be found by:
1,000,000(1+.10)(1+.10)(1+.10) = $1,191,016.00

or, equivalently,

1,000,000(1+.10)3 = $1,191,016.00

This leads us to the formula for the Future Value of a lump sum:
FV = PV(1+i)ⁿ

Here, PV = present value or amount, i=interest rate, n = length of time.

Points are one of the most misunderstood aspects of mortgage loans. In the simplest definition mortgage points are a percentage of your loan amount due at closing for one of two possible reasons. Here are the basics you need to know about mortgage points and how you can decide if paying them is worthwhile when refinancing your home mortgage loan.

Types of Mortgage Points

Mortgage points come in two flavors. One point is equal to one percent of your mortgage amount and is the fee you’ll be required to pay at closing. There are the discount points you pay to the lender in exchange for a lower mortgage rate and the origination points you pay to the broker for their part in arranging your loan. Brokers and lenders do not always require that points be paid; however, some lenders hide their point requirements in the fine print hoping to distract you with an unnaturally low mortgage rate.

If you don’t agree to pay the points required for that low mortgage rate you’ll find the actual interest rate is often much higher than the going market rate. This is a common bait and switch tactic used by mortgage lenders to boost their profits. Fortunately once you understand how points work this is an easy scam to avoid.

Should You Pay Mortgage Points?

Deciding whether or not paying points to the lender is in your best interest depends on how long it will take you to recoup the expense based on the lower monthly payment you are getting. We’ve all seen the commercials on television promising insanely low rates with a lot of very small print flashed up on your screen. If you pause the commercial and squint you can just make out that this lender requires two points at closing to qualify for this low rate. Does it make sense to pay the fee?

You can easily determine this with a simple mortgage payment calculator. First compare the lower payment with points to the higher payment without points. The difference between the two payments is your monthly savings. Suppose you were refinancing a $200,000 loan with this lender. Two points would amount to $2,000 due at closing. If the monthly payment is $35 lower it will take you almost five years to recoup this expense. If you plan on staying in your home for the long term paying points can be beneficial; however, if you sell your home before this you’ll be losing money by paying points.

What About Origination Points?

Mortgage brokers often charge origination points for their part in arranging your loan. Not every mortgage charges origination points as brokers can receive compensation from the lender behind your loan. If your broker is charging you a fee for arranging your loan a reasonable fee to pay is 1-1.5% of your loan amount. You can learn more about your mortgage refinancing options including costly mistakes to avoid by registering for my free video tutorial.

Mortgage loan application volume plunged 28.7 percent on a seasonally adjusted basis for the week ending March 28, 2008 compared to a week earlier, the Mortgage Bankers Association (MBA) said today.
On an unadjusted basis, the refinance application index decreased 28.1 percent compared with the previous week and was up 4.8 percent compared with the same

Home mortgage rates are at near all time lows and many of you might be wondering how to predict when they will bottom out. Mortgage interest rates are extremely difficult to predict; sometimes when the Federal Reserve lowers short term interest rates mortgage interest rates actually go up. Sometimes when the stock market takes a hit and bond yields are up mortgage rates go down. The truth is no one can actually predict when mortgage rates are going to bottom out…anyone that tells you can is selling you a loan.

How can you get the lowest mortgage rates?

Instead of trying to predict when mortgage rates will bottom out you can save yourself thousands of dollars by concentrating on what aspects of your mortgage rate you can control. There is one factor affecting your mortgage rate that 90 percent of homeowners have never heard about…namely the commission based markup of your interest rate. You might thing that when you apply for a home loan the lender runs your credit, looks at your qualifying ratios, and will approve your loan with the interest rate you deserve. This simply is not the case.

Beware Your Loan Originator

Your mortgage company or broker you choose when taking out a mortgage actually determines whether or not you’ll pay too much for your next home loan. Pick the wrong person for the job and you’ll overpay thousands of dollars every year you keep this mortgage. All because of a little known fact called Yield Spread Premium. Simply put…this is the commission based markup of your interest rate. The broker arranging your mortgage gets paid in two ways. They get paid by charging you an origination fee for their work and they get paid by marking your mortgage rate up for a kickback for lender.

How Yield Spread Premium Works

Yield Spread Premium is a percentage of your home loan amount created when the broker or mortgage company locks and closes your loan with a higher than market interest rate. When you get approved for your home loan the lender approves you for a certain mortgage rate, say 5.5%. The broker turns around and marks this up telling you that you qualified for 6.25% because the lender pays them 1% of your loan amount for every .25% they markup up your loan.

Suppose you’re refinancing your home for $200,000 taking out a fixed rate loan for thirty years will get you a payment of $1,231 at 6.25%. If you had gotten the mortgage rate you deserve at 5.5% your monthly payment would be $1,135 per month. That’s $1,152 that you’re throwing away every year because your mortgage broker took advantage of you!

Mortgage Rates Predictions

As you can see it’s much more important to make sure your loan does not include Yield Spread Premium than it is to try and make mortgage rates predictions. When you avoid Yield Spread Premium you’ll be taking advantage of wholesale mortgage rates and can negotiate with your broker to pay only a one percent mortgage origination fee. There are honest mortgage brokers out there that do not abuse Yield Spread Premium; you just have to find the right person for your loan. You can learn more about finding the right person to arrange your next mortgage without taking advantage of you by registering for my free home mortgage video tutorial…and don’t let anyone pull the wool over your eyes making meaningless mortgage rates predictions.

Most people think that to find the lowest mortgage rates you have to find the best mortgage lender and this just simply isn’t the case. The person arranging your loan has more to do with your mortgage rate than you think…choose the wrong person for the job and you’ll overpay thousands of dollars every year you keep the loan.

What I’m talking about here has nothing to do with your credit or qualifying ratios; it’s all about the markup of your mortgage rate for a commission. Here are the basics you need to know before refinancing your home loan to get the best mortgage rates.

Understanding Mortgage Rate Quotes

Most of the rate quotes you see online are simply garbage. In order to accurately quote you a mortgage rate your mortgage broker needs sixteen pieces of your personal financial information. If you get quotes without providing the intimate details of your finances the person you’re dealing with has no intention of honoring that rate. Assuming that you have provided this information the quotes you receive are not the mortgage rates you qualify, they have been marked up to get a commission from the lender behind your loan.

What is Commission Based Markup?

Most brokers charge an origination fee to you for their services. This fee is disclosed on your Good Faith Estimate and HUD-1 settlement statement. What your broker isn’t telling you is that they get paid by the lender also for marking up your mortgage rate. This markup is what makes mortgage loans “retail” products. Just like buying a car where the dealership markups up your car for profit the mortgage broker marks up your loan to make a buck. This is considered dishonest by many because you’re already paying an origination fee for their work and this markup can cost you thousands of dollars every year.

Yield Spread Premium

The technical term for the fee paid by the lender is Yield Spread Premium. Basically the way it works is the lender pays your broker .25 percent of your home loan for every quarter percent they overcharge you. You might think that a quarter percent isn’t much but in a moment I’ll show you what this markup does to your mortgage payments. Yield Spread Premium is rarely disclosed on the Good Faith Estimate and can be hard to recognize on your HUD-1 statement. The best way to avoid this unnecessary markup is to be upfront with your mortgage broker about your intentions for the loan.

Here is an example to illustrate the markup of your mortgage rate by the broker. Suppose you are refinancing your home for $250,000 and the broker quotes you a rate of 6.75 percent with an origination fee of 1.5%. You’ll pay the broker $3,750 at closing for this fee. Assuming that you take out a 30 year home loan with a fixed mortgage rate your monthly payments for this loan will be $1,622. What your mortgage broker isn’t telling you is that you actually qualified for a 6% mortgage rate and they’ve marked it up for the Yield Spread Premium. If you had actually gotten the mortgage rate you deserve in this example your monthly payment would be $1,498. This is a difference of $1,488 every year you keep this loan…money you’ll pay for no good reason!

If you are looking for a mortgage company for your South Carolina home loan there are several things you should know about rate quotes before choosing one. The rate quotes you receive on the Internet and from your South Carolina mortgage companies all include commission based markup that could result in overpaying thousands of dollars every year you keep the loan. Here are the basics you need to know about mortgage rates before choosing a mortgage company in South Carolina to purchase or refinance your home.

The commission based markup of your mortgage rate is the industries dirty little secret. Your mortgage company tells you that you qualified for a specific interest rate when you actually were approved for a much lower rate. South Carolina mortgage companies do this because the lender behind the loan pays them a commission for overcharging you. This commission is called Yield Spread Premium and according to the Secretary of Housing and Urban Development is responsible for homeowners in the United States overpaying sixteen billion dollars every year.

How Yield Spread Premium Works

Suppose you purchased your South Carolina home for $350,000 and qualified for a 7% mortgage rate. You used a traditional fixed rate mortgage to purchase your home with a 30 year term length and your payments have been $2,328 but what you don’t know is that you actually qualified for a 6.25% interest rate and the mortgage company marked it up to get a bonus from the lender. Your mortgage company charged you a fee from originating your loan and then took a kickback from the lender of 3% of your loan amount for overcharging you.

If you had purchased your home at 6.25% instead of 7% your mortgage payment would have been only $2,155. The first year you had your home you threw away $2,076 because your South Carolina mortgage company lied to you about your rate. After just five years you’ve thrown away $10,380!

If you’re like many Florida homeowners refinancing mortgage loans, finding the lowest mortgage rate is your primary concern when refinancing. Getting the lowest possible Florida mortgage rates takes more than just comparison shopping; you’ll need to understand how rate quotes work to get the best deal. Here are several tips to help you find the best mortgage when refinancing your Florida home loan.

Mortgage rate quotes

With the exception of Bank loans, mortgages are retail products resold by mortgage companies and brokers for profit. Mortgage brokers make their profits by charging you a fee and by marking up your mortgage rate. The quotes you receive when shopping for Florida mortgage rates all include markup by the broker to give them a commission.

The commission paid by the mortgage lender is called Yield Spread Premium and avoiding it needs to be your number one priority when refinancing your home. Yield Spread Premium Sounds scary but it’s a relatively simple concept to wrap your head around. When a lender approves your application they are approving you for a certain “wholesale” mortgage rate. Your mortgage broker marks this rate up to get a kickback from the lender…for every quarter percent you agree to overpay the broker gets paid one percent of your mortgage amount.

Florida Mortgage Rates and You

The problem with this commission based markup of your mortgage rate is that it’s never properly disclosed or explained. Yield Spread Premium adds thousands of dollars to your mortgage payment every year that you keep that loan, money you’re paying because the broker took advantage of you. Here’s an example to illustrate Yield Spread Premium and Florida mortgage rates.

Suppose you’re refinancing your Sarasota home for $300,000 with a fixed rate 30 year mortgage. The broker quotes you a mortgage rate of 7%….you’ve had some dings on your credit and need to consolidate your home equity loan so you agree to the loan. Your mortgage payment at 7% interest is $1,995 per month.

What your mortgage broker isn’t telling you is that you actually qualified for a 6.5% mortgage rate and they’ve marked it up to 7% to get a 2% commission from the lender. This commission is paid in addition to the 1% origination fee that they’re charging you. The broker walks away with 3% and you get stuck paying more than you need to…but exactly how much more?

The same loan with a 6.5% mortgage rate has a monthly payment of only $1890! That’s an additional $1,260 you’ll be paying every year just to give your mortgage broker a bonus. Over the next five years this balloons up to $6,300! How many other uses do you have for your own money besides giving it to someone that lied to you?

If you are considering refinancing your mortgage and want the best Florida mortgage rates, there are several things you need to know about the rate quotes you receive. The quotes you receive over the Internet and from your mortgage broker all include commission based markup that could result in your overpaying thousands of dollars every year. Here are the basics you need to know about Florida mortgage refinancing to help you avoid paying too much for your next mortgage loan.

Beware Commission Based Markup

The commission based markup of your mortgage rate is called Yield Spread Premium. What is this markup? Yield Spread Premium is simply a percentage of your loan amount created when the mortgage broker or Internet mortgage company locks and closes your loan with above market interest rates. This is paid on top of any origination fees you’re already paying for that person arranging your loan.

Here’s an example of how Yield Spread Premium works. Suppose you are refinancing your Florida home mortgage for $350,000 and the broker tells you that you qualified for 6.5%. The broker charges you a one percent origination fee for arranging the loan; however, what you don’t know is that you were approved to a 6.0% mortgage rate and the broker marked it up to get a 2% kickback from the lender. In this example you pay the broker $3,500 for the origination fee and the lender pays them $7,000 more for overcharging you.

Mortgage rate locking can be a source of confusion for many homeowners. Lock at the wrong time and you could miss out on a good rate…fail to close before the lock expires and you could miss your rate all together. Locking your mortgage rate when refinancing is more important than you think; your rate lock confirmation provides you key information regarding your mortgage rate. Here are the basics you need to know about locking your mortgage rate when refinancing to avoid paying too much for your next mortgage loan.

Mortgage Rates Are Constantly Changing

Mortgage rates tend to fluctuate on a daily and sometimes hourly basis. If you miss locking your refinancing mortgage rate today, it will not be the same tomorrow. Your mortgage broker has to re-price your loan on a near daily basis. Before you can understand the importance of your mortgage rate lock confirmation you need to understand how your mortgage broker is paid for their work.

Brokers get paid by charging you:
Origination Fees
Mortgage Broker Fee
Yield Spread Premium

The origination and mortgage broker fees are pretty straight forward but often over-inflated. Yield Spread Premium on the other hand will be cleverly disguised in your loan documents if disclosed at all. In the simplest terms Yield Spread Premium is simply a percentage of your loan amount created by the broker when they lock and close your mortgage with above market rates. This is a commission paid by the lender when your mortgage broker overcharges you.

If you plan on staying in your home for the long term it makes sense to pay an origination fee and avoid Yield Spread Premium completely. If you agree to pay any amount of Yield Spread Premium on your loan you could overpay thousands of dollars every year that you keep the loan. The problem is most homeowners don’t know how to recognize Yield Spread Premium on their loan documents. This is where the rate lock confirmation comes in…this one piece of paper could save you thousands of dollars.