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My land contract buyer (sold them a small house 5 years ago, and they've been paying every month) sent the final check. It's WRONG. They included this "amortization" chart (I call it that loosely) and it's all WRONG (see attached photo of her "spreadsheet", hopefully it's clear enough). I can't figure out what the basis is she used to run it. I'm curious as Hell to know what she based these on, but I've had to stay up around the clock for two days now, and my brain is a bit whoozy. Can you see it and tell me? For sure the interest and principal amount sizes are reversed (along with being wrong amounts even then)
Here was the loan parameters as set forth in the closing documents:
$36,500.00 start principal (they made a down payment that cut it down to this)
8.5% interest per annum (year)
12 payments a year.
5 year balloon. (60 months total)
They asked to pay $350.00 a month, notwithstanding a 30 year amortization with a 5 year balloon would have actually been LESS payment per month.
So, 59 known payments of $350 a month, followed by an "unknown" final Balloon payment. ALL my calculations figure out the final balloon payment as: $30,041.62.
She believes she's right at her calculated: $19,771.58. final payment. So, she actually owes me a tad over $10k MORE.
I guarantee my figures are correct, and I invited her to check with any bank, as they'll agree. I'm sure she will after checking, but I still just HAVE to know how her figures are all wrong. I'm sure she didn't do this deliberately, and it's just a mistake based on something I don't know.
So, here's two sites I double-checked with, you could do the same to see the schedule, and maybe it would help you see what the heck she's doing or basing her figures on:
Ok, I looked at the photo of her "spreadsheet: again, and noticed it didn't pick up the labels. Here's what they are:
Upper right corner she starts the first payments. Top RED $350 for the payment next figure down is $229.16 labeled "principal paid" next below that is: $120.84 labeled "interest paid". next below that is: $120.84 again labeled: "Total Interest". Yellow next below is: $16,830.09 highlighted in yellow and labeled: "Balance". That was the very first payment in the beginning.
She has essentially "reverse" calculated the total amount of principal that would be paid if one had a 60 month loan at 8.5%.
That principal amount would be $17,059.41 if payments of $350 were made....
So I can see why she has made this "mistake"
Her calculations are essentially based on a loan amount of that $17059 with a $0 balloon... Which she then subtracted from the $36,500.
You have to show her that the mortgage/loan was based on a value of $36,500 and that after 60 months of $350 payments she still owes $29k+... Any simple interest amortization calculator would show that clearly.
Last edited by volk2k; 08-31-2016 at 09:32 PM..
Reason: Edit: Also ask her for the excel spreadsheet so that you can point out the folly of her formula
She has essentially "reverse" calculated the total amount of principal that would be paid if one had a 60 month loan at 8.5%.
That principal amount would be $17,059.41 if payments of $350 were made....
So I can see why she has made this "mistake"
Her calculations are essentially based on a loan amount of that $17059 with a $0 balloon... Which she then subtracted from the $36,500.
You have to show her that the mortgage/loan was based on a value of $36,500 and that after 60 months of $350 payments she still owes $29k+... Any simple interest amortization calculator would show that clearly.
Holy cow, no wonder my brain couldn't understand since I KNEW the starting principal was $36.5k, and I've been up for almost 48 hours now. Your explanation makes sense, and probably means she used a car loan calculator to figure it out, PLUS starting with the wrong principal balance.
Thanks! I appreciate it! I explained to her to see her original closing docs, which is what figures I used, and invited her to take it to her bank to confirm in her own mind that I was right. I'm so OCD though, I really HAD to know how her chart could have been so OFF. Now I can see it, and actually explain it to her correctly.
So...you sold a house on Land Contract and you didn't provide a running tally of what was paid and the balance owed each month? Live and learn.
Forget the amortization tables. In order to show her the error in her ways, I think you'll need to simply show her how to calculate the payments each month. ($36,500 X .085 /12 = monthly interest; $350 - Interest = Principal paid) For the first month, on a $36,500 balance at 8.5%, the interest payment would have been $258.54...leaving a principal payment of $91.46 that month. Subtract that principal payment from $36,500 and the balance owed would have been $36,408.54.
Start with that figure for the next month's calculation, and the subsequent month's interest would have been $257.89 and the principal payment amount would have been $92.11...leaving a balance of $36,316.43. Rinse and repeat.
Hopefully she will clearly see that her figures are way off. (I still had difficulty reading them and I didn't understand what her final line in each column was supposed to represent. It didn't make sense as a "Balance" number, even given her figures.)
I do have a couple of questions, though. When was the closing date and when was the first payment on the Land Contract made? (after the down payment, of course) Since payments were made on a monthly basis, was there a need to prorate interest payments for a partial month in the beginning? Otherwise, payments would be easy to calculate monthly, and for each payment they are paying interest for the month that has already passed. (I'm assuming that payments were all made on time and that there were no late fees involved.) It's not that difficult to calculate interest and principal, but everyone needs to know how it works so they can feel confident in the calculations.
Hopefully you can get this resolved without too many hard feelings...but if your Land Contract calls for a balloon payment after 5 years, what if she can't pay it off? In fairness, you really should have been providing her with a monthly statement and you probably should have provided her with an annual interest statement for tax purposes.
So...you sold a house on Land Contract and you didn't provide a running tally of what was paid and the balance owed each month? Live and learn.
Forget the amortization tables. In order to show her the error in her ways, I think you'll need to simply show her how to calculate the payments each month. ($36,500 X .085 /12 = monthly interest; $350 - Interest = Principal paid) For the first month, on a $36,500 balance at 8.5%, the interest payment would have been $258.54...leaving a principal payment of $91.46 that month. Subtract that principal payment from $36,500 and the balance owed would have been $36,408.54.
Start with that figure for the next month's calculation, and the subsequent month's interest would have been $257.89 and the principal payment amount would have been $92.11...leaving a balance of $36,316.43. Rinse and repeat.
Hopefully she will clearly see that her figures are way off. (I still had difficulty reading them and I didn't understand what her final line in each column was supposed to represent. It didn't make sense as a "Balance" number, even given her figures.)
I do have a couple of questions, though. When was the closing date and when was the first payment on the Land Contract made? (after the down payment, of course) Since payments were made on a monthly basis, was there a need to prorate interest payments for a partial month in the beginning? Otherwise, payments would be easy to calculate monthly, and for each payment they are paying interest for the month that has already passed. (I'm assuming that payments were all made on time and that there were no late fees involved.) It's not that difficult to calculate interest and principal, but everyone needs to know how it works so they can feel confident in the calculations.
Hopefully you can get this resolved without too many hard feelings...but if your Land Contract calls for a balloon payment after 5 years, what if she can't pay it off? In fairness, you really should have been providing her with a monthly statement and you probably should have provided her with an annual interest statement for tax purposes.
Oh, but I DID in fact give her a printed out amortization schedule of the entire loan, right at the closing. I made two copies, one for each of us to keep. What she did with it, I do not know. It was explained to her at the title company when we closed. I didn't do this on my kitchen table.
The closing date was August 2nd, 2011 with first payment due September 5th, 2011.
I do in fact know how to calculate out an amortization schedule by hand. I did explain in my first posting that I've now been up and awake for almost 48 hours (long story...) and I'm woozy enough that I THOUGHT I realized her calculations were based at around $17000 something, but couldn't convince my tired brain anybody could have made that mistake. After all, I did provide her with the printout schedule, she has a copy of the original closing docs laying it all out, so I can't help it if maybe she didn't look at it, or whatever happened.
I know for a fact they have the money to pay off the rest of it. This was just a stupid mistake, but as I said, I'm pretty OCD, and I'd go nuts for days trying to make sure I wasn't seeing things in a crazy mistake that large. I had to KNOW others were seeing the same things I thought I was seeing.
P.S. The original terms of the contract were open to negotiation. I did not mention an interest rate that I wanted. I would have accepted nearly anything at that point. THEY picked the interest rate of 8.5% themselves, and then asked for it, based on a up front discount of $8,000 off the original price. I only broke even on the house, as I basically only recovered that money over the 5 years.
Oh, but I DID in fact give her a printed out amortization schedule of the entire loan, right at the closing. I made two copies, one for each of us to keep. What she did with it, I do not know. It was explained to her at the title company when we closed. I didn't do this on my kitchen table.
The closing date was August 2nd, 2011 with first payment due September 5th, 2011.
I do in fact know how to calculate out an amortization schedule by hand. I did explain in my first posting that I've now been up and awake for almost 48 hours (long story...) and I'm woozy enough that I THOUGHT I realized her calculations were based at around $17000 something, but couldn't convince my tried brain anybody could have made that mistake. After all, I did provide her with the printout schedule, she has a copy of the original closing docs laying it all out, so I can't help it if maybe she didn't look at it, or whatever happened.
I know for a fact they have the money to pay off the rest of it. This was just a stupid mistake, but as I said, I'm pretty OCD, and I'd go nuts for days trying to make sure I wasn't seeing things in a crazy mistake that large. I had to KNOW others were seeing the same things I thought I was seeing.
I wasn't commenting on whether or not you did...I was just saying that I thought that was the best way to explain it to her. Good luck.
I wasn't commenting on whether or not you did...I was just saying that I thought that was the best way to explain it to her. Good luck.
Oh, and thanks, as your point is well taken with providing a running statement, maybe even at least once a year.
I really assumed they'd just follow the schedule I gave them, as they in fact never made extra payments, and were always on time or a bit early.
I'll know better for the next one, if I ever do another one. RE sales such as this one was, certainly can end up being a very emotional issue, with a lot of hard feelings all the way around.
But, they were able to buy a vacation house with a double lot, overlooking a lake, and at a price they could handle. I hated to sell the place, but sometimes you have no choice at the time.
Ok, to wrap up this thread: It was explained to her carefully, and my buyer now understands she was wrong on what she thought was the final balloon payment. They are getting together the rest of the money owed and I'll have it next week. Probably a day or two past the 5th, but that doesn't concern me much.
There appears to be no hard feelings on either side, stuff happens... I do wish she had called and talked to me before she sent the final check, and this could have been resolved before it went down this way.
I guess the "rule of assumption" strikes again, on BOTH sides.
I out the numbers in quickly online and came up with this. It shows less than the $350 payment, but it's closer to reality than she thinks
What she had was basically an interest only loan, which is what happens the first few years of any 30 year mortgage.
Balloon loans should be called Lead weight balloon loans.
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