jm72
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Post by jm72 on Jun 19, 2014 9:50:11 GMT
I'm struggling on understanding the Buyer rate which comes up when I sell loan parts. My understanding was:
1) Rate from auction - simple interest
2) Rate on sale - compound interest
Therefore, on these property loans the buyer rate should be higher than the rate bid in auction. At the moment it isn't.
Alternatively, if the Rate on sale is also Simple Interest - then if you sell a loan part as soon as it is accepted for zero premium, then the Rate on sale should be the same as the Rate from the auction. Again - it isn't.
Any thoughts? Where have I gone wrong?
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Post by GSV3MIaC on Jun 19, 2014 12:42:55 GMT
Buyer rate is horrible to calculate - it's basically the simple(?)(well 1/12th of annual each month) interest rate which gets back the purchase price from the income payments over time .. so it all depends on how long to the first (and subsequent) payments. The only way to get at it (see the formula on the FC site!) is actually to iterate the calculation, iirc, once you've figured out what the payments will be (a bit simpler for interest only I guess, but a mess for other fixed rate loan with amortisation periods <> to the loan term)..
Or you can let the FC server do the heavy lifting, which is what the 'sell my parts' page does every time you change a markup box 8<.
However for those fixed rate property loans (interest only) the buyer rate should usually be the same as the fixed rate (to the accuracy FC displays .. i.e. one decimal place), assuming no mark up .. what numbers did you get which differed (tell us fixed rate, buyer rate, and loan number?)
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blender
Member of DD Central
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Post by blender on Jun 19, 2014 13:17:43 GMT
Buyer rate is simple interest (there is a definition somewhere on the site), and I have never seen a difference between the buyer rate and the interest rate for a loan part offered or sold at par (no premium or discount). Would like to know id and how it can happen.
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wysiati
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Post by wysiati on Jun 19, 2014 13:54:14 GMT
Buyer rate is simple interest (there is a definition somewhere on the site), and I have never seen a difference between the buyer rate and the interest rate for a loan part offered or sold at par (no premium or discount). Would like to know id and how it can happen. You can see an example today with 6514 if you have loan parts you want to sell at par. Drawn down today so no accrued interest etc to complicate things. Listed at 0.0% premium (buyer rate 8.0%) but, if sold, showing as a buyer rate of 7.9%. FC think this is yet another 'display issue' and that the real buyer rate is indeed 8.0%.
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jm72
Posts: 109
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Post by jm72 on Jun 19, 2014 13:56:21 GMT
Buyer rate is simple interest (there is a definition somewhere on the site), and I have never seen a difference between the buyer rate and the interest rate for a loan part offered or sold at par (no premium or discount). Would like to know id and how it can happen. You can see an example today with 6514 if you have loan parts you want to sell at par. Drawn down today so no accrued interest etc to complicate things. Listed at 0.0% premium (buyer rate 8.0%) but, if sold, showing as a buyer rate of 7.9%. FC think this is yet another 'display issue' and that the real buyer rate is indeed 8.0%. That was the one I was looking at - seen it on other loans as well though. I don't understand how it can be a display issue - unless for some reason the calculation comes out just below 8.0% and there is a 'Rounddown' function rather than 'Round' function! Edit: Regardless of whether it is a display or calculation issue - the important rate is the displayed rate. This is what people see and what people buy on, not some calculated figure in the background!
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blender
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Post by blender on Jun 19, 2014 14:24:47 GMT
Sadly the most likely explanation of many puzzles is an FC coding error. I have not sold any 6514 yet but on other property loans it has been ok. I have not had an interest only loan before.
Looking at the loan parts for 6514 it seems that all the £20 loan parts at par are 7.9% while all higher value parts are at 8%. I wonder if I bought one of the £20 parts and sold it the buyer would get it at 7.8%.
My parts are £100 and are on sale at 8% and highly recommended for retaining their value.
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wysiati
Member of DD Central
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Post by wysiati on Jun 19, 2014 14:39:18 GMT
You can see an example today with 6514 if you have loan parts you want to sell at par. Drawn down today so no accrued interest etc to complicate things. Listed at 0.0% premium (buyer rate 8.0%) but, if sold, showing as a buyer rate of 7.9%. FC think this is yet another 'display issue' and that the real buyer rate is indeed 8.0%. That was the one I was looking at - seen it on other loans as well though. I don't understand how it can be a display issue - unless for some reason the calculation comes out just below 8.0% and there is a 'Rounddown' function rather than 'Round' function! Edit: Regardless of whether it is a display or calculation issue - the important rate is the displayed rate. This is what people see and what people buy on, not some calculated figure in the background! Agreed. That is why they have been asked to check the underlying calculation. There was, IIRC, an incorrect calculation of interest payments on property loan 5867.
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