Time Value of Money Flashcards
Interest and other charges while borrowing funds.
COST OF BORROWING
Interest can be
FLOATING OR FIXED
The rate will be Floating (ex.Prime+0.5%)
IF THE BORROWING FACILITY IS A GENERAL LINE OF CREDIT.
Typically the rate/term is Fixed and Closed
IF THE CREDIT FACILITY IS TIED TO A CERTAIN ASSET OR SUBJECT TO AN INCOME RATIO.
Other charges
BANK FEES
LOAN SET-UP FEES
STANDBY CHARGES
LOAN DISCHARGE FEE
PREMIUM
BROKERAGE FEE
Commitment fee usually around 0.5% - 1%
LOAN SET UP FEE
Fees to be paid for an unused credit facility
STANDBY CHARGES
When a loan is fully / partially repaid, a bank typically charges a fee to do so.
LOAN DISCHARGE FEE
If financing is arranged by a third-party broker, a fee is typically charged, and it can range from 0.15% - 1% of the loan amount.
BROKERAGE FEE
Premium in interest rate.
THE INTEREST, TERM, SECURITY ARE ALL FACTORS DETERMINE BY BANK CREDIT RISK APPROVAL DEPARTMENT.
THEY ARE REFERRED TO AS THE PRICING OF THE DEAL BY BANKS.
Short / long term arrangement with a set amount of limit.
Flexible withdrawals or repayments.
OPERATING REVOLVING
NONREVOLVING FACILITY
Facility is replenished by the amount repaid
OPERATING REVOLVING
Facility amount is reduced by the amount withdrawn and cannot be increased by the amount repaid.
NON-REVOLVING FACILITY
Term loan or Mortgage
FIXED AMOUNT OF BORROWING FOR A FIXED AMOUNT OF AMORTIZATION PERIODS.
LOAN IS PAID DOWN AT THE PRE-SET INTEREST RATE AND FIXED AMOUNT OF PERIODS.
LOAN AMOUNT IS CAPPED AT DSCR. DEBT-TO-SERVICE RATIO.
Calculated by income (before interest /tax) / annual interest payment.
DSCR - DEBT-TO-SERVICE RATIO