Far Trader, 30 years old with 10 years of payments: What's the mortage?

[opensent]

I'm running a small T20 game for a few friends and I'm just about to hit them with the bill for the Far Trader (68.138 MCR new in T20).

It's 30 years old with 10 years of payments left. They are just comming into ownership.

What's a good payment to stick them with? 283,908 per month for 120 months?

The used price based on the book would be:
68,138,000 x 60% = 40,882,800

But then they would finance that over another 40 years?

Advice from much wiser sophonts appreciated.

 

[Chaos]

Well, paying over 40 years they have to pay 0.5% of the total price per month, which is 240% over 480 months.
0.5% of the new price is Cr340,689.6.

That would mean, after 30 years, 60% are left. Which is Cr40,882,800 - however, that is not what they would pay as a lump sum.

[short excursion into financing]
Actually, this sum is 340,689.6 now, 340,689.6 next month, 340,689.6 in two months, and so on, for ten years.
But 340,680.9 next year, or in ten years, isn´t the same as 340,689.6 now. It is the same as the amount you´d have to invest NOW to have 340,689.6 in one year, or in ten years.

That, in turn, depends on the interest rate. At 0%, 340,689.6 now and next year are the same. At 5%, 340,689.6 next year is 340,689.6 divided by 1.05 (1 plus the interest rate), which is about 324,500. 340.689.6 in two years is 340,689.6 divided by 1.05^2 (1.05 times 1.05), or about 309,000. Or general, x/((1+i)^n), with x being the sum, i being the interest rate, and n the number of periods (years, usually) in the future.

This gets more complicated if we include partial interest for months. I´d forget about that, and stick with yearly interest, and use 4,088,280 as a yearly payment. Set an interest rate then - 5% sounds reasonable.
Then, x+(x/((1+i)^1))+(x/((1+i)^2))+...+(x/((1+i)^10)) gets you the lump sum payment for a ship with 10 years of payments left, which you can then use to figure out a new 40-year payment plan.

[/excursion]

I think I have a formula somewhere to figure out what kind of interest rate the "240% over 40 years" payment plan corresponds to. If only I could muster the effort to look for it...

 

[Rover]

In simple game terms he would have to pay 1/240th the cost of the vessle per month for 10 years.

In real would terms he could be able to refinance the debt to extend the terms and reduce the monthly interest. If you want anyhing approaching reality you should google up a mortgage calculator. Maybe something at http://www.mortgage-calc.com/ can help with the calcualtions you are after.

Keep in mind that in a mortgage most of the early payments are almost all interest and very little priciple. Even after 3/4 of the payments are complete they would probable still owe more that half the cost of the ship. Keep that in mind when determining equity in the ship.

Personally I would keep things simple. If they want to refinance, consider the ship 50% paid for and thier monthly payment will be 1/480th the total cost of the ship for 40 years. If the want to buy it out right the should come up with 55% the cost ship. Half the cost plus a 5% penalty for paying early. That may not even come close to real life, but it is simple and you can get back to gaming and away from book keeping. You might want to let a PC with P/Admin or broker skills attempt to change the percentages.

 

[TheEngineer]

Well, I guess it would be correct to pay the 283908 per month for the next 10 years in order to keep und conclude the finance contract with the bank.
But only, if they have the money (just those 40 MCr) to directly buy the used ship

Otherwise they really have to refinance the ship, thus starting with a 20% down payment and 480 month rates again (just to keep the simple Traveller starship purchase scheme).
IMHO thats ok as long as the ship is in its "good health" time.

But wait. There are professional traders around here with better advice

Regards,

Mert

 

[archhealer]

Hah. Wait till they start arguing depreciation value with the ship sellers. That just gets amusing. Is the depreciation yearly? Monthly? Continually compounded? Linear? Heh.

 

[JAFARR]

There are two options as I see it.

1. They assume the mortgage if the bank will allow it, and continue the payments of 283,908 for 120 months as you stated in your opening statement. In this case, the ship should be 30 years old.

2.They re-finance it in which case it gets a little tricky. You have to decide how the banks IYTU work. The best rule is: "For game purposes, keep it simple." In fact, that was what the original rule intended to do. Keep it simple. You don't say how they aquired it, so I assume they either bought and or traded for it. If you want to follow real life without a lot of time spent in paperwork, have the bank's appraisers inspect the ship and declare it worthy of refiancing. Evaluate what their trade-in is worth. Decide what is owed. (You can use the ideas above as a guide, or be real simple and say that as the rule goes, there are 10 years left on a 40 year loan so 25% is still owed.) Decide how much of that amount the bank wants as a down-payment. Remember the 20% was paid to the shipyard, so the bank may be willing to work with say 10%. Subtract the downpayment and what you have left is the new loan amount. Start with the 1/240th of that amount for 480 months. If PCs can show how they can realistically expect to pay more, the divide the loan amount by what they can pay. This is the new monthly payment. The new pay-off date is now twice as long as it takes to pay the amount owed.

Real simple example: 10 years left means first owner owes 25% of the new cost plus that amount in interest. Because the loan is being replaced, ignore the interest part. 25% of the original cost is 17.0345 MCr. The bank says that they will round it out at 20 MCr, and they want 15% (or 3 MCr) as a downpayment. Which leaves the new loan at 17 MCr. That works out to 70,834 Cr a month. The PCs present a working plan that shows they can expect to pay 100,000 Cr a month. 17,000,000 divided by 100,000 equals 170 months so the new loan will be paid off in 170 times 2 equals 340 months or 28 years and 4 months.

The bank should have no problem with this arrangement as they will make as much or more with re-financing just like they do in real life.

May I add a work of advice gained in about 30 years of mortgage and rent payments. Buy what you can afford. Mortgage or rent needs to be 25% or less of your monthly income. Also you need a cusion of 3 to 6 months worth of all your payments in savings to cover emergencies like loosing your job or a non-work related injury or illness. I did not have it because we streched to buy a better house and streched again to buy a better vehicle and we streched ...etc. Then when my wife's employer went under and she went from making $20+ an hour to working for me in fast food at $6 an hour, we went bankrupt.

Edit: In the example above, changing the debt amount does not change the annual maintance cost.That is based on the actual cost to build the ship.

 

[ravells]

This is life imitating art. Now that traveller players are older, mortgage calculations have become second nature to them. 20 years ago we would have had only a vague idea of what a mortgage was

I wonder whether in 20 years time the topic of the moment might be 'old age pensions in traveller'.



Ravs

 

[JAFARR]

In 20 more years I'll be 75, if I live that long. Not really sure what I'll be doing with Traveller unless it's refereeing for my grand nieces and nephews. (With the problems my son has, I doubt I'll have grandkids.)

 

[JAFARR]

I was just doing some playing around with a spread sheet to put something like this into practice.

Old ship is standard Free Trader with 2 triple mixed turrets. Total cost new (LBB2) about 40 MCr.
Appraised at 75% of new value equals about 30 MCr. for a down payment. The new ship (to PCs) is 60 years old, but well maintained. The selling price is 60 MCr. The bank wants 15% or 9 MCr down and the PC decides to put down the entire 30 MCr from her first ship. She also calculates she should be able to pay .2 MCr a month from this ship. The bank offers her a 20 year loan at 2.5%. Simple math says 2.5% times 30 MCr times 20 years equals 15 MCr in interest over the life of the loan. 30 MCr owed plus 15 MCr intrest equals 45 MCr total owed. That works out to 2.25 MCr a year or .1875 MCr a month to repay the loan.

I started checking some LBB2 ship prices with the simplified interest calculations and if you ignore the required 20% down payment to the shipyard, 2.5% per year for 40 years is exactly double the origional new ship price. So to make a formula for non-standard payment plans, use a 2.5 annual percentage rate times the loan amount times the number of years. Add this amount to the loan amount for the total loan. Multiply the number of years by 12 for the total payments. Divide the total loan amount by the total number of payments to get the monthly payments.

It's a little simplified compared to real life, but it keeps the game playable.

 

[BetterThanLife]

OK, the book answer is that the mortgage payments are the same as when the ship is new. Or roughly KCr 167 per month. The player that has earned the 30 year old ship owns the ship as if they had been making the payments, so they already have the mortgage. The issue is if they want to and can establish credit to refinance the ship. (DO they have 20% down for the new value of the ship?) And will a used ship still qualify for a 40 year mortgage.

Those are answers for the Referee to give.

Remember a Free Trader can easily make the standard mortgage payment just hauling cargo and passengers at less than 80% capacity. So giving them a break and letting them pay less will put lots of cash in their pockets, without even speculating at all. The more important question is how rich do you want your characters?