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Section 10: Computation of Mortgage Interest Differential Payments (MIDP)

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Overview

Advise displacees of the estimated payment for increased interest early enough in the negotiation of relocation entitlements to allow consideration of this payment in determining the new mortgage amount for the replacement dwelling purchased. This will reduce the mortgage principal balance to an amount that can be amortized using the same monthly principal and interest payment of the displacement dwelling mortgage.

FHWA’s MIDP form shall be used and submitted with payment requests. It is located on their website as follows: https://www.fhwa.dot.gov/real_estate/uniform_act/relocation/midpcalcs/

The estimate is therefore made and offered before details of the new mortgage are known. The sample computation shown in the previous section produced an estimated payment of $7,989.50, which would be offered to the displacees with a full explanation of conditions required to receive this amount when a new mortgage is obtained. When the new mortgage balance obtained is less than the computed payoff balance, prorate the payment.

When a loan origination fee and/or purchaser’s discount points are involved in the new loan, compute increased interest payments as follows:

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Sample A

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Existing Mortgage

New Mortgage

Interest rate

7%

10% fixed rate

Remaining principal balance

$50,000.00

$50,000.00 plus assumed

Monthly P & I payment

$458.22

Unknown

Remaining term

174 months

174 months - plus months assumed

Loan origination fee

N/A

1%

Purchaser’s discount points

N/A

2


Using a financial calculator and following Page 2 of form ROW-R-117B Buydown Computation of Increased Interest, the computation provides the following result:

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  1. Lesser remaining balance: $50,000.00
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  2. Lesser remaining term: 174 months
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  3. $50,000.00 at 7% for 174 months = payment of: $458.22
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  4. Payment of $458.22 at 10% for 174 months will pay off a mortgage in the amount of: $42,010.50
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  5. $50,000.00 minus $42,010.50 = $7,989.50
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  6. Add origination fee (amount for item 4): $420.11
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  7. Add discount points (amount for item 4): $840.21
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  8. Total buy-down interest amount (Add items 5, 6 & 7): $9,249.82
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Sample B

Assuming that the actual principal balance of the new mortgage is $35,000.00, compute the increased interest payment as follows:

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  1. Lesser remaining balance: $50,000.00
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  2. Lesser remaining term: 174 months
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  3. $50,000.00 at 7% for 174 months = payment of: $458.22
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  4. $458.22 at 10% for 174 months will pay off: $42,010.50
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  5. $50,000.00 minus $42,010.50 = $7,989.50
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  6. Add origination fee (amount for item 4): $420.11
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  7. Add discount points (amount for item 4): $840.21
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  8. Prorate factor: $35,000.00: $42,010.50 = 83.31% = 0.8331
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  9. ($7,989.50 + $420.11 + $840.21) x 0.8331 = $7,706.03
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Partial Acquisition: Multi-Use Properties, Other Highest and Best Use

For partial acquisitions, and when the dwelling is on a normal residential site for the area, reduce the mortgage balance and monthly payment to the same proportion that the acquisition bears to the whole property value before computing the increased interest payment. However, when the mortgage requires the mortgage to be paid off, treat it as though it is a whole acquisition.

Where a dwelling is located on a site larger than normal for residential use, it is a multi-use property, or the site has a higher and better use, reduce the existing mortgage balance and monthly payment to the same proportion the residential value of the dwelling portion bears to the before value of the whole property.

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More Than One Mortgage

When there is more than one mortgage on either the acquired dwelling or the replacement dwelling or on both dwellings, compare the mortgages in the order they occur, (i.e., first, second, third). Since the various mortgages compared will not be equal, compare any balance left of a given mortgage with an equal amount of the next mortgage of the other property. On each comparison, use the shortest term. After all the mortgages on either property are compared with mortgages of the other property, sum the total computed payments derived from each comparison to determine the increased interest payment to the displacee. Since the total mortgage for each property will not usually be the same, the remaining portion of the mortgages on the dwelling with the largest total will not enter into the computations - just as though there was only one mortgage on each property and the computations were based on the lowest mortgage sum. An example of these calculations follows:

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1st Mortgage

Existing Mortgage

New Mortgage

Interest Rate

5%

8%

Remaining Term

144 months

240 months

Remaining Principal Balance

$8,375

$9,000

2nd Mortgage

Existing Mortgage

New Mortgage

Interest Rate

6%

9%

Remaining Term

27 months

60 months

Remaining Principle Balance

$746

$1,725

3rd Mortgage

Existing Mortgage

New Mortgage

Interest Rate

7%

none

Remaining Term

9 months

-

Remaining Principal Balance:

$137

-


First Computation

Monthly payment for $8,375.00 at 5% for 144 mos. = $77.46 ($8,375 PV; 5.0) 12 = % int.; 144 = n; 2nd pmt.)

Payment of $77.46 at 8% for 144 mos. will pay off a mortgage in the amount of $7,155.97 ($77.46 = Pmt.; 8) 12 = % int.; 144 = n; 2nd PV)

$8,375.00 minus $7,155.97 = (Int. Payment) $1,219.03

Second Computation

At this point, the entire existing first mortgage is accounted for leaving a balance of $625 in the first mortgage of the replacement property. The $625 is compared to $625 of the second of the existing mortgages as follows:

Monthly payment for $625 at 6% for 27 mos. = $24.80 ($625 = PV; 6 ÷ 12 = % int.; 27 = n; 2nd pmt.)

Payment of $24.80 at 8% for 27 mos. will pay off a mortgage in the amount of $610.94 ($24.80 = Pmt.; 8 ÷ 12 = % int.; 27 = n; 2nd PV)

$625.00 minus $610.94 = (Int. Payment) $14.06

Third Computation

A balance of $121 remains in the second of the existing mortgages which is compared to $121 of the second mortgage of the replacement dwelling as follows:

Monthly payment for $121 at 6% for 27 mos. = $4.80 ($121 = PV; 6 ÷ 12 = % int.; 27 = n; 2nd pmt.)

Payment of $4.80 at 9% for 27 mos. will pay off a mortgage in the amount of $116.93 ($4.80 = Pmt.; 9 ÷ 12 = % int.; 27 = n; 2nd PV)

$121 minus $116.93 = (Int. Payment) $4.07

Fourth Computation

The entire existing second mortgage is accounted for, leaving only the $137 existing third mortgage that will be compared with $137 of the remaining $1,604 balance of the second mortgage on the replacement dwelling as follows:

Monthly payment for $137 at 7% for 9 mos. = $15.67 ($137 = PV; 7 ÷ 12 = % int.; 9 = n; 2nd pmt.)

Payment of $15.67 at 9% for 9 mos. will pay off a mortgage in the amount of $135.88 ($15.67 = Pmt.; 9 ÷ 12 = % int.; 9 = n; 2nd PV)

$137 minus $135.88 = (Int. Payment) $1.12

The remaining $1,467 balance on the second mortgage on the replacement dwelling is not considered, since it was the displacee’s decision to borrow more money on his/her replacement dwelling than on his/her existing dwelling, which is not required. The total interest payment is the sum of the four computations as shown below:

First Computation = $1,219.03

Second Computation = $14.06

Third Computation = $4.07

Fourth Computation = $1.12

Total Increased Interest = $1,238.28
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