8.2 Commission, Financing, and Interest Calculations

The Money Math of a Transaction

This section covers the calculations agents perform most often in real life and most often on the exam: commissions and their splits, loan-to-value and down payment, points and discount fees, and simple interest. Every one of them is a variation of the percentage relationship Part = Rate × Whole.

The Percentage Triangle

Nearly all money math is one equation seen three ways. Memorize the T-bar: Part on top, Rate and Whole on the bottom.

• Part = Rate × Whole
• Rate = Part ÷ Whole
• Whole = Part ÷ Rate

For commission, Part is the commission dollars, Rate is the commission percent, and Whole is the sale price. Identify which two values you have, cover the unknown, and the triangle tells you whether to multiply or divide.

Total Commission and Splits

Worked example: A home sells for $380,000 at a 6 percent total commission.

Step 1: Total commission = $380,000 × 0.06 = $22,800. Step 2: Split 50/50 between listing and selling brokerages = $11,400 each. Step 3: The selling agent keeps 60 percent of the selling brokerage's share = $11,400 × 0.60 = $6,840.

Trap: the exam often asks only for the agent's net after a brokerage split, not the full commission. Read the final question line carefully before you stop calculating.

Loan-to-Value and Down Payment

Loan-to-value (LTV) compares the loan to the lesser of sale price or appraised value.

LTV = Loan Amount ÷ Value

Worked example: A buyer purchases at $400,000 with an 80 percent LTV loan. Loan = $400,000 × 0.80 = $320,000. Down payment = $400,000 − $320,000 = $80,000, or equivalently $400,000 × 0.20.

Trap: when appraised value is lower than the contract price, lenders calculate LTV on the lower figure, increasing the cash the buyer must bring.

Points and Discount Fees

One point equals 1 percent of the loan amount (not the sale price). Points include origination and discount points. Each discount point typically buys down the rate.

Worked example: A $320,000 loan with 2 discount points and 1 origination point = 3 points total. Cost = $320,000 × 0.03 = $9,600.

Trap: candidates multiply points by the purchase price. Always apply points to the loan amount.

Simple Interest

The national exam uses simple interest: Interest = Principal × Rate × Time. Time is in years; convert months to a fraction of a year.

Worked example: A $200,000 loan at 6 percent annual interest. Annual interest = $200,000 × 0.06 = $12,000. One month of interest = $12,000 ÷ 12 = $1,000. This monthly figure is exactly what you need for interim interest at closing.

To find a rate: a loan paying $9,000 interest per year on $150,000 carries a rate of $9,000 ÷ $150,000 = 0.06, or 6 percent.

Principal-and-Interest Payment Splits

With an amortized loan, each payment covers interest on the current balance first, and whatever remains reduces principal. The exam tests the first month of a new loan.

Worked example: A $250,000 loan at 5 percent with a $1,342.05 monthly payment. First-month interest = $250,000 × 0.05 ÷ 12 = $1,041.67. Principal portion = $1,342.05 − $1,041.67 = $300.38. New balance = $250,000 − $300.38 = $249,699.62. Trap: early in an amortized loan almost all of the payment is interest, so do not assume a 50/50 split.

Equity and Appreciation

Equity is value minus what is owed: Equity = Market Value − Loan Balance. It grows as the loan amortizes and as the property appreciates.

Worked example: A home bought for $300,000 appreciates 4 percent in a year. New value = $300,000 × 1.04 = $312,000. If the loan balance is now $228,000, equity = $312,000 − $228,000 = $84,000. To find a percent increase, divide the dollar change by the original figure: $12,000 ÷ $300,000 = 4 percent. Always divide change by the starting value, not the ending value.

Qualifying Ratios for Loan Approval

Lenders test affordability with two ratios that appear on the exam:

Worked example: A buyer earns $96,000 per year, so gross monthly income = $8,000. At a 28 percent front-end cap, the maximum housing payment = $8,000 × 0.28 = $2,240. Trap: convert annual salary to monthly first; applying the ratio to the annual figure overstates the limit twelvefold.

Points, Interest, and Split-Commission Drills

Discount/origination points: One point = 1% of the loan amount. On a $240,000 loan, 2 points = $240,000 x 0.02 = $4,800 paid at closing. Points are always figured on the loan, not the sale price.

Simple interest: Annual interest = Principal x Rate. A $180,000 loan at 7% accrues $180,000 x 0.07 = $12,600/year, or $1,050/month. The first month's interest on a new loan is exactly this monthly figure; principal reduction in early payments is tiny.

Solve for principal: A borrower pays $1,400 in one month's interest at a 6% annual rate. Monthly rate = 6% / 12 = 0.5%. Principal = $1,400 / 0.005 = $280,000. The exam reverses the interest formula to test whether you can isolate any one variable.

Commission Splits Worked End to End

A $420,000 home sells at a 6% total commission = $25,200. The listing and selling brokerages split it 50/50 = $12,600 each. The selling agent's internal split with their broker is 70/30 in the agent's favor: agent receives $12,600 x 0.70 = $8,820; the brokerage keeps $3,780. Trap: commission is computed on the sale price, never the list price, and the agent's take depends on a second internal split - candidates who stop at the gross commission miss the question.