Mtg Loan Calculator
In Texas, land is aplenty. However, finding suitable financing for it can be a challenge. In this post, I want to focus on some frequently asked questions about financing land and calculating the payments on your next piece of dirt.
For your convenience, I have provided you with a downloadable mtg loan calculator below. Feel free to play around with it. Also, check out the amortization table that comes with it. If you have any questions about land loans, feel free to check out the following Q&A with First Source Capital Mortgage’s president, Dan Cunyus.
Land Loan Calculations
Q: Is a land loan calculated differently from a typical home loan?
A: In terms of the loan, not really… If the land loan is paid monthly, then it is pretty much calculated the same as a home
loan. If it is a semi-annual payment, quarterly payment, or annual payment (which is common for production-oriented land loans) then it would be calculated differently. So, it depends on the particular use of the land.
Q: What do you need to know to calculate the monthly payments on land loans?
A: You would need to know the loan amount, the interest rate, the frequency of payments, and the term of the loan. For example, if the frequency of payments was quarterly vs. monthly then that would be calculated differently.
Q: What is the formula for calculating monthly payments on a land loan?
A: It would depend, again, on the specific loan product and the frequency of payments. The formula would be the same if it was a monthly payment, as you would have with a house loan, but if the payments are made quarterly or semi-annually then they are calculated differently. The interest is calculated differently since the principal reduction comes at different intervals than you would normally see on a monthly payment in a home loan. The same would be true with a semi-annual payment or an annual payment.
Q: Can you explain what amortization is?
A: Amortization is the process by which you pay off debt based on a single payment that allocates a certain amount of interest for each loan payment and a certain amount of principal reduction for each payment.
So, in the early life of amortization, the interest is the highest at any given point in the loan and the reduction of principal is the lowest.
As you approach the midway point in the life of the loan the amount of interest paid and the amount of principal reduction should be about even.
Towards the end of the loan term, the total payment allocation increases and is applied towards principal reduction, conversely, the payment allocation towards interest decreases.
Q: What is an amortization table?
A: An amortization table shows you what the payments would be based on the term of the loan. It also shows you the interest rate and the frequency of payments. There are different factors that you would apply to the loan balance in terms of how many payments would be required to reduce the balance of the loan.
How is land categorized?
Q: Can land be categorized into different types?
Land is categorized into different types depending on its use. Land use can range from development purposes for subdivisions, commercial purposes for shopping centers and all kinds of commercial buildings, agricultural land used as a pasture for grazing, permanent plantings for orchards or vineyards, row cropland, or recreational land used for recreational purposes such as hunting.
FSCAP offers land loans for all of these different uses. There are several different ways that we approach these types of loans. Our job is to determine the best use of the land, and make sure the loan product that we match to the land is eligible for the particular use that the owner or buyer has in mind.
Q: In the eyes of a lender, what is the difference between recreational land and raw land?
A: Essentially, they are the same. Raw land is land where there is no development or improvement. It is just… land. However, raw land could also be considered recreational land. For example, we often run across land around Central Texas that has been fenced so that the owners can keep exotic deer or other animals contained within the boundaries of their ranch. Other types of recreational land could include a piece of land that has a cabin, workshop, or barn on it.
Q: Is there anything else that you would like your borrowers to know about FSCAP’s land programs?
A: At FSCAP, we have the best rates available from institutional sources throughout the industry. Unlike the farm credit associations, we do not require that you own stock in First Source Capital Mortgage to do a loan for a borrower. First Source Capital Mortgage has a quick turnaround on our loan approvals. Our loan approvals can happen as quickly as 24 hours for borrowers that have plentiful assets, good credit, and strong liquidity. From there it is a question of getting the appraisal and title work done to get it closed and funded.
Q: What type of products does FSCAP have for land loans?
A: We have numerous products that range anywhere from a monthly variable rate on a 30-year amortization (not a balloon note) or a 25-year amortization (again, not a balloon note). This rate applies to our 20, 15, and 10-year terms as well.
Essentially, the loan products could either be fixed for the fully amortized period or they could be what we call “reset rates” whereby the rate is reset at different intervals throughout the cycle of the mortgage.
For example, if the loan is amortized over 20 years and there is a 5-year “reset”, then the loan would reset at the end of each 5 years period until the balance is paid off. Typically, land loan “resets” do not have caps, and they don’t have floors. So, the rate adjusts to whatever the market is.
Keep in mind though, it is not a balloon note. It allows you to lock the money up for the long term, but you’re rolling the dice a little bit on what your rate is going to be during those specific intervals. If the loan resets every year or every third year, it would essentially become an ARM (adjustable-rate mortgage) loan.
We also have what we call a “line of credit” loan for producers who, instead of having to go to the bank with their hat in their hands to borrow money, can draw at will against the line of credit that is secured by a piece of farm or ranch land and that doesn’t have any debt on it. Even if it does have some debt on it, FSCAP can refinance it and roll it into the loan to give the borrower access to the equity they have in the land.
Borrowers, then, make payments on a loan balance against whatever the existing balance is during the life of the loan. Typically, producers draw it down during a time when they are buying cattle planting or buying seed. Then, they will pay it back when they sell their cattle or harvest and sell their crops.
We hope that this will provide you with some guidance. If you still have questions, please feel free to email Dan@fscap.com or call us at (903) 482-1123. Ask for Dan, and tell him Patrick sent you. :) Happy land hunting!