MORTGAGEE & MORTGAGOR INTERESTS
david hornby

The elements under this standard are:
• interpret outcomes of analysis
• analyse data on subject mortgage
• determine mortgagee's or mortgagor's interests value

- record value, analytical approaches used and qualifications required.

MORTGAGE REPAYMENTS

Compound formulae can be used to determine the repayments of a real estate mortgage. The formula used is derived from the present value of 1 pa (PVPMT) because mortgage repayments can be equated to rent (PMT), and the loan amount to the market value or present value of an investment property (PV).

EXAMPLE
Determine the mortgage repayments for a home loan of \$400 000 over 20 years at 12% pa:

STEP 1:

Determine PVPMT:

PVPMT = (1 PV)/ (i/100)
= (1  0.1037)/0.12
= 7.469

7.469 is the PV of \$1 per annum.

STEP 2:
Determine the mortgage repayments:

What is the payment (PMT) for a PV of \$400 000?

Using proportions:

PMT: 400 000 = 1: 7.469

Therefore:

PMT = 400 000/7.469 = \$53 550 pa

MORTGAGEE'S INTEREST (MEEI)

As well as the lessee and lessor, the mortgagee and mortgagor have an interest in a mortgaged property.

EXAMPLE
Determine the mortgagee and mortgagor interests in the above house at the end of 5 years.

The mortgagee's Interest is the PVPMT of the remaining future loan repayments.
After 5 years the mortgagor will owe 15 years of repayments:

STEP 1:

Determine the PVPMT for n =15

PVPMT(15) = (1 0.1827)/0.12 = 6.811

STEP 2:

Multiply by the mortgage repayments

PVPMT(53 550)
= 6.811 * 53 550 = \$364 730

Therefore, the mortgagee's interest is \$364 730 which is the amount owing on the loan at the end of 5 years.

MORTGAGOR'S INTEREST (MORI)

The mortgagor's interest in the property is market value less the mortgagee's Interest.

If the market value
= \$500 000

Deduct mortgagee's interest
= \$(364 730)
----------------
\$135 270 = MORTGAGOR'S INTEREST

The mortgagor is able to obtain a second mortgage on this interest.

See annual rental equivalent (ARE)

See fines

See equivalent cash price