NAME: EVELYNE PETER MUTHIKE

REG NO: 1036963

TASK: ASSIGNMENT
LECTURER: MR. MWANZA
UNIT: REAL ESTATE FINANCE
The financing instruments in real estate are:Mortgages, trust deeds, and land contracts.
A mortgage is a two-party instrument in which a borrower gives a promissory note and
a mortgage to the lender (the mortgagee). While the mortgagee is customarily a lending
institution such as a bank, at times the property seller may finance the buyer directly.
When this happens, the seller is the mortgagee and receives the mortgage as security
for the balance of the property’s purchase price.

The mortgage is typically recorded in the office of the county recorder. Once recorded,
it provides public notice of the mortgagee’s interest in the property. When the
mortgagor pays off the balance of the mortgage, the mortgagee gives the mortgagor a
satisfaction of mortgage document, which is also recorded. This document gives notice
that the mortgagee’s interest in the property is terminated.
A trust deed is a three-party instrument in which the borrower (the trustor) makes
payments on a note to a lender (the beneficiary). In order to provide the beneficiary
with a greater measure of security, the trustor actually gives title to the property in the
form of a trust deed to a third person (the trustee) to hold.
A land contract (also known as a contract of sale or contract for deed) is a two-party
instrument in which the seller (or vendor) retains title to the sold property and the
buyer (the vendee) is merely given possession. The vendee doesn’t receive a deed to the
property until the vendor has been paid in full.
Land contracts are often used when the seller is financing a buyer who’s making the
purchase with a relatively small down payment. Since the seller retains the best possible
security (title to the property), foreclosure is generally fairly quick and simple in the
event of a default.
Mkulima ltd has been awarded a loan by Transnational Finance Company to develop
and lease apartment structure which will be standing on a lot at Pioneer city in Eldoret
Municipality. The loan is Kshs 500,000,000 to be paid on equal installments on an annual
basis for Ten years at an interest rate at Cap of 10% p.a.
Required
a) Compute the equal repayment amount.
Annual repayments = PVAn /PVIFAk,n.
Where PVA = Present Value of Annuity = 500,000,000
PVIFA = Present Value Interest Factor of Annuity
 −n
1−( 1+r )
=[ ] = 6.145
r

Annual repayments = 500,000,000 / 6.145

= 81,366,965

b) The loan amortization schedule to enable Mkulima Ltd. to plan its cashflows.
LOAN AMORTIZATION SCHEDULE

PAYMENTS
END LOAN BEG. OF YEAR INTEREST PRINCIPAL END OF YEAR
OF PAYMENT PRINCIPAL PRINCIPAL
YEAR
[10% X b] [a - c] [b - d]
a b c d e
1 81,366,965 500,000,000 50,000,000 31,366,965 468,633,035
2 81,366,965 468,633,035 46,863,303 34,503,662 434,129,373
3 81,366,965 434,129,373 43,412,937 37,954,028 396,175,346
4 81,366,965 396,175,346 39,617,535 41,749,430 354,425,915
5 81,366,965 354,425,915 35,442,592 45,924,373 308,501,542
6 81,366,965 308,501,542 30,850,154 50,516,811 257,984,731
7 81,366,965 257,984,731 25,798,473 55,568,492 202,416,239
8 81,366,965 202,416,239 20,241,624 61,125,341 141,290,898
9 81,366,965 141,290,898 14,129,090 67,237,875 74,053,023
10 81,366,965 74,053,023 7,405,302 73,961,663 0