Can you help solve this tough one for Finance Charge?

needsomehelp

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Apr 3, 2015
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I am given this information in my loan docs. I cannot for the life of me figure out how the resulting "Finance Charge" was calculated? Please help

Inputs:
Amount Financed: $997,500
Finance Charge (prepaid):$2,500
Note Amount:$1,000,000
Interest: 6%/360 days
Payments: 11 (eleven)


Results:
APR = 6.616%
Finance Charge: $32,916.64
Total Payments:$1,030,416.64
 
I am given this information in my loan docs. I cannot for the life of me figure out how the resulting "Finance Charge" was calculated? Please help

Inputs:
Amount Financed: $997,500
Finance Charge (prepaid):$2,500
Note Amount:$1,000,000
Interest: 6%/360 days
Payments: 11 (eleven)


Results:
APR = 6.616%
Finance Charge: $32,916.64
Total Payments:$1,030,416.64

You are trying to borrow $ 1 M?

Or is it a homework?
 
I am given this information in my loan docs. I cannot for the life of me figure out how the resulting "Finance Charge" was calculated? Please help

Inputs:
Amount Financed: $997,500
Finance Charge (prepaid):$2,500
Note Amount:$1,000,000
Interest: 6%/360 days
Payments: 11 (eleven)


Results:
APR = 6.616%
Finance Charge: $32,916.64
Total Payments:$1,030,416.64
If this is from a "Schumer Box" calculation, the exact formula is specified in Federal Reserve regulations.

I am guessing that it is the result of computing the sum of the payments on a self-amortizing loan of 1 million dollars at 0.5 % per 30 day period with 11 payments less 997500 dollars. To be sure, I would have to see the exact contractual language from the note. Give me the legal language from the note, and we can give you the exact arithmetical formula.

The result looks plausible, but you have not provided the information needed to verify it.
 
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If this is from a "Schumer Box" calculation, the exact formula is specified in Federal Reserve regulations.

I am guessing that it is the result of computing the sum of the payments on a self-amortizing loan of 1 million dollars at 0.5 % per 30 day period with 11 payments less 997500 dollars. To be sure, I would have to see the exact contractual language from the note. Give me the legal language from the note, and we can give you the exact arithmetical formula.

The result looks plausible, but you have not provided the information needed to verify it.

OK- Here is what is says.

“Payment Schedule. Borrower's payment schedule consists of the following: 11 monthly consecutive payments beginning May 15, 2017, with interest calculated on the unpaid principal balance at an interest rate based on the Evergreen Bank Prime Rate (currently 5.000%), plus a margin of 1.000%, resulting in an initial interest rate of 6.000% based on a year of 360 days; and one payment of $1,002,583.33 on April 15th, 2018 with interest calculated on the unpaid principal balances at an interest rate base on the Evergreen Bank Prime Rate (currently 5.000%), plus a margin of 1.000%, resulting in an initial interest rate of 6.000% based on a year of 360 days. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled and that the Index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under the Note.”
 
OK- Here is what is says.

“Payment Schedule. Borrower's payment schedule consists of the following: 11 monthly consecutive payments beginning May 15, 2017, with interest calculated on the unpaid principal balance at an interest rate based on the Evergreen Bank Prime Rate (currently 5.000%), plus a margin of 1.000%, resulting in an initial interest rate of 6.000% based on a year of 360 days; and one payment of $1,002,583.33 on April 15th, 2018 with interest calculated on the unpaid principal balances at an interest rate base on the Evergreen Bank Prime Rate (currently 5.000%), plus a margin of 1.000%, resulting in an initial interest rate of 6.000% based on a year of 360 days. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled and that the Index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under the Note.”
Well this makes no sense at all.

If the total finance charges are under 33000 for the entire year and the balance outstanding after 11 payments is over 1 million, it is quite obvious that the rate being charged is WAY under 6%. I am guessing, but it looks as though there are eleven payments that partially amortize the loan plus a final balloon payment. What does it say about the amount of the eleven payments: is it a fixed amount or is it a base amount plus interest? The final balloon payment appears way too high to be consistent with the interest rates being disclosed or contractually specified. This may be where the mistake is.

It would help to know what class you are taking.The problem looks a lot like a law school hypothetical. If it is, I'd haul out the relevant Federal Reserve Regulation (12 CFR 226 also known as Reg Z), and start by looking at Appendix J. If this is not a class and what you are dealing with is legal interpretation of an actual contract for almost 1 million dollars, you need to consult a lawyer, not a mathematician, and find a more transparent bank.

You do understand that disclosures under Reg Z are hypotheticals that have nothing to do with what you may actually end up paying? There are rules for those disclosures in Reg Z, and those rules are based on assumptions about future conditions. The provisions of the contract determine what you will actually pay under the conditions that actually arise.
 
Last edited:
Well this makes no sense at all.

If the total finance charges are under 33000 for the entire year and the balance outstanding after 11 payments is over 1 million, it is quite obvious that the rate being charged is WAY under 6%. I am guessing, but it looks as though there are eleven payments that partially amortize the loan plus a final balloon payment. What does it say about the amount of the eleven payments: is it a fixed amount or is it a base amount plus interest? The final balloon payment appears way too high to be consistent with the interest rates being disclosed or contractually specified. This may be where the mistake is.

It would help to know what class you are taking.The problem looks a lot like a law school hypothetical. If it is, I'd haul out the relevant Federal Reserve Regulation (12 CFR 226 also known as Reg Z), and start by looking at Appendix J. If this is not a class and what you are dealing with is legal interpretation of an actual contract for almost 1 million dollars, you need to consult a lawyer, not a mathematician, and find a more transparent bank.

You do understand that disclosures under Reg Z are hypotheticals that have nothing to do with what you may actually end up paying? There are rules for those disclosures in Reg Z, and those rules are based on assumptions about future conditions. The provisions of the contract determine what you will actually pay under the conditions that actually arise.

RE -contracts course.. and it's an interest only loan with principal due at maturity.
 
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