Use this pari passu mortgage calculator to determine the blended cost and total monthly payment when two separate mortgage tranches (Loan A and Loan B) are equally ranked (“pari passu”) against the same collateral.
Pari Passu Mortgage Calculator
Loan A Details
Loan B Details
Pari Passu Mortgage Calculator Formula
1. Monthly Rate (r_m):
r_m = Annual Rate / 1200
2. Total Months (t):
t = Term in Years * 12
3. Monthly Payment for Loan X (M_X):
M_X = P_X * [ r_m / (1 - (1 + r_m)^-t) ]
4. Total Monthly Payment (M_Total):
M_Total = M_A + M_B
5. Weighted Average Cost of Rate (R_WACR):
R_WACR = [ (P_A * r_A) + (P_B * r_B) ] / (P_A + P_B)
(Where P=Principal, r=Annual Rate, M=Monthly Payment)
Formula Source: Amortization Calculation (Investopedia), Pari Passu Definition (Investopedia)
Variables
- Principal Amount ($): The initial amount borrowed for each loan (Loan A and Loan B).
- Annual Interest Rate (%): The yearly interest rate charged for each loan.
- Term in Years: The scheduled length of time, in years, over which the debt is to be repaid.
What is a Pari Passu Mortgage Calculator?
The term “pari passu” is Latin for “on equal footing.” In the context of finance and real estate, a pari passu mortgage (or debt tranche) refers to a scenario where multiple lenders have an equal and ratable right to the security (the property) and the cash flow generated from it. Unlike senior/junior or first/second lien mortgages, pari passu debt shares the same risk and recovery priority.
This calculator simplifies the complexity by determining the combined financial impact of two co-equal loans against a single property. It calculates the total consolidated monthly payment required to service both debts, as well as the blended Weighted Average Cost of Rate (WACR) to give a single, comparable interest metric for the entire debt stack.
This tool is crucial for financial analysts, developers, and sophisticated borrowers managing complex capital stacks that involve syndicated or equally ranked debt.
How to Calculate Pari Passu Mortgage (Example)
- Define the Loans: Assume Loan A is $200,000 at 5% over 30 years, and Loan B is $100,000 at 6% over 15 years.
- Calculate Monthly Payments: Use the amortization formula to find the monthly payment for Loan A ($1,073.64) and Loan B ($843.86).
- Determine Total Monthly Payment: Sum the two monthly payments: $1,073.64 + $843.86 = $1,917.50.
- Calculate Total Principal: Sum the principals: $200,000 + $100,000 = $300,000.
- Calculate Weighted Average Rate: Use the WACR formula: $[ (200,000 \cdot 0.05) + (100,000 \cdot 0.06) ] / 300,000 = 0.05333$ or 5.33%.
Frequently Asked Questions (FAQ)
A: It means the two loans have the same legal standing and equal priority of claims on the property’s collateral. Neither loan is senior or subordinate to the other.
Q: Why is the Weighted Average Rate important?A: The Weighted Average Cost of Rate (WACR) gives the borrower a single, comprehensive metric to compare the overall cost of the combined debt to other single-loan options in the market.
Q: Can I use this calculator for a first and second mortgage?A: No. A first and second mortgage are explicitly *not* pari passu; they have different priorities. This calculator is designed for two loans with equal seniority.
Q: What happens if the loan terms are different?A: The loans can have different terms and rates. The calculator correctly handles this by calculating each monthly payment independently before summing them and determining the weighted average cost.