Actual Amortization Calculation
Requirements
You must amortize SARM Loans on a straight line basis over the total loan term. The amount of amortization due during the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term is the same amount that would be due, in total, for a comparable fixed rate loan. When you calculate the amortization due, you must consider
- the loan term,
- amortization schedule,
- any interest only period, and
- the Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). .
To calculate SARM Loan amortization, you must use fixed rate pricing with an interest rate equal to:
- an indicative MBSMBSMortgage-Backed Security investor yield; plus
- the lower of:
- the lowest Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. in the Pricing MemoPricing MemoApplicable DUS Pricing Memo or non-DUS Pricing Memo communicating pricing for various products and features. for a hypothetical actual/360 fixed rate Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. with the same loan term and Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the SARM Loan; or
- the Guaranty FeeGuaranty FeeFee retained by Fannie Mae for credit enhancing a Mortgage Loan or assuming credit risk on a Mortgage Loan, and which may be expressed as a percentage. and Servicing FeeServicing FeeFee a Servicer receives for collecting payments, managing operational procedures, and assuming your portion of credit risk for a Mortgage Loan, and which may be expressed as a percentage. quoted by the Deal TeamDeal TeamTeam responsible for reviewing Pre-Review Mortgage Loans, waivers, etc. for a fixed rate Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. when you request pricing for the SARM Loan.
1. You must obtain quotes for a hypothetical actual/360 fixed rate Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. .
| For example, for a SARM Loan with a 10-year loan term... | |
|---|---|
| Guaranty Fee quoted by Fannie Mae | 0.95% |
| Servicing Fee quoted by Fannie Mae | + 0.55% |
| US Treasury and Investor spread (quoted by Fannie Mae or Third Party MBS Investor) | + 4.00% |
| Gross Note Rate | = 5.50% |
You must use the same 5.50% annual interest rate to calculate the amortization for the 10-year SARM Loan.
2. You must calculate the fixed monthly principal installment required over the term of the SARM Loan following these steps:
Step 1: Using an actual/360 interest accrual method, calculate the aggregate amortization amount that would be collected over the term of the SARM Loan based on the:
- principal amount of the SARM Loan;
- lowest applicable interest rate for a hypothetical actual/360 fixed rate Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. with the same loan term, and Pricing and Underwriting TierPricing and Underwriting TierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). as the SARM Loan, rounded to 3 decimal places; and
- required amortization period.
Step 2: Divide the aggregate amortization amount determined in Step 1 by the number of amortizing monthly installments in the SARM Loan term. For example, the number of monthly installments would be:
- 60, for a 5-year amortizing Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. ;
- 84, for a 7-year amortizing Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. ;
- 120, for a 10-year amortizing Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. ; or
- 108, for a 10-year Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. with 1 year of interest-only.
The result is the fixed monthly principal installment.
Example: Assume a 10-year TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). 2 fixed rate Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. with a
- 5.500% per annum Gross Note RateGross Note RateInterest rate stated in the Loan Documents. ,
- 360-month amortization period, and
- $25 million loan amount.
Calculate the fixed monthly principal installment as follows:
Step 1: Calculate the aggregate principal amortization amount that would be collected over the term of the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. if it had a fixed rate.
Estimate the month and year in which the first full monthly loan payment would be made, based on an actual/360 amortization schedule. The total amount of amortization depends on both
- the number of days (i.e., 28, 29, 30, or 31) in the month prior to each loan payment date, and
- when the next leap year occurs.
Assuming
- a SARM Loan amount of $25 million,
- a 30-year amortization term,
- a debt service constant calculated using the Gross Note RateGross Note RateInterest rate stated in the Loan Documents. of 5.500% (6.8134680% debt service constant),
- an actual/360 interest accrual method,
- an issue date of December 1, 2018, and
- a first loan payment date of January 1, 2019,
the aggregate amount allocated to principal over 120 payments is $4,114,494.17.
Step 2: Calculate the fixed monthly principal installment by dividing the aggregate amortization amount by the total number of amortizing payments during the SARM Loan term.
| Calculate the fixed monthly principal installment... | |
|---|---|
| Aggregate amortization | $4,114,494.17 |
| Divided by total payments | 120 |
| Equals fixed monthly principal | $34,287.45 |