Talk:Amortization schedule

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Spelling[edit]

We modified the spelling of "Principal Balance" from "Principle Balance" . The link now points to a new page. --Mhervitz 14:34, 10 August 2006 (UTC)

Does the article really benefit from the programming guide? I think it would be better served linked off the main page

I agree, but only out of concern for exposing innocent eyes to the horrors of VisualBasic coding. :-) —LarryGilbert 06:30, 26 July 2007 (UTC)
I don't think it makes sense to be on the main page. The formula is easy enough to implement for someone with even basic experience in Excel -- or just on your favorite spreadsheet program. Plus the program is very bulky and not clear as to what it's doing. If someone wants a amortization schedule, there are also oodles of free calculators on the net. Maybe a link to a calculator would make more sense? Trompelamort 22:40, 15 September 2007 (UTC)
It was very helpful to me. Doing it in Excel is useless when you need to incorporate into a large piece of software. Same thing with a "calculator." If you need to write software that implements amortization then this is helpful. The program was clear to me. I am glad for having found it. Now how about formula for unequal first payment! 70.91.104.249 23:00, 17 September 2007 (UTC)
Ok, but wouldn't this be better suited as pseudo code? The visual basic code is huge, bulky, and most of it isn't really necessary to understand the algorithm. For instance, I could write a similar program in perl in 20 lines:
#! /usr/bin/perl

use strict;
use warnings;

my $principal = 100;
my $interest = 0.10;
my $number_payments = 5;

my $payment = ($interest * $principal *((1 + $interest)**$number_payments)) /
              (((1 + $interest)**$number_payments) - 1);
$payment = $payment * -1;

print "Payment\t\tAmount\t\tPrincipal\t\tInterest\n";
print "0\t\t$principal\t\tN/A\t\tN/A\n";

for (my $i = 1; $i <= $number_payments ; $i++) {
  my $interest = $interest * $principal * -1;
  my $prin = $payment - $interest;
  $principal = $principal + $payment;
  print "$i\t\t$payment\t$prin\t$interest\n";
}

Pseudocode seems like it would be better, and more informative Trompelamort 00:18, 24 September 2007 (UTC)

RE: Mortgages ad "disparate allocation"[edit]

Given as stated

"when mortgaging a home with an amortized loan... there is substantial disparate allocation of the monthly payments toward the interest"

Disparate compared to what?

Compared to what the given (standard) amortization schedule formula indicates?

Or compared to a loan with a much shorter term?

Is the statement intended to indicate that such loans are deliberately crafted by lenders in an unfair fashion because they're not standard, or, is it supposed to be simply a warning that the lengthy terms of mortgages require payment of high total interest costs in general?

Thanks for any illumination that can be provided. 198.49.180.40 21:50, 15 August 2007 (UTC)

Answer

This isn't about mortgage companies ripping people off.

An amortization schedule is designed so that you can pay off a loan with a set interest rate over a specified term -- in any loan (mortgage, car loan, whatever). Make sense?

So the first year, you're paying nearly all interest and a very small slice of principal.

The next year, you pay a little bit more principal, and a little less interest.

Each year the amount of principal you're paying goes up, while the amount of interest you're paying goes down.

By the end of the loan, you have paid off the entire principal balance.

It's easiest if I illustrate it with an actual table.

Let's say you wanted to borrow $1,000 over 3 years with one payment a year at 10%.

You'd have the following schedule:

Year Payment Balance Left Principal Paid Interest Paid
0 $1,000.00 $1,000.00 $0.00 $0.00
1 -$402.11 $697.89 $302.11 $100.00
2 -$402.11 $365.57 $332.32 $69.79
3 -$402.11 $0.02 $365.55 $36.56

Year 1 25% of your payment is interest Year 2 17% of your payment is interest Year 3 09% of your payment is interest

So the percentage of your payment that is interest goes down with each year.

Because the term of this loan is only 3 years, the percentage of the starting payment that is interest is still relatively low. But on a 30 year loan, you'd pay $106.08 a year, or $100 interest the first year, with only $6.08 in principal.

So, if you are a frequent refinancer, you never really build up any equity in your home -- because you really don't start paying down the principal until many years into your loan.

Trompelamort 22:31, 15 September 2007 (UTC)

RE: other models[edit]

Does anyone know formulae (or where to find them -I had Google strikeout) for

  • Declining balance
  • Increasing balance (negative amortization)

Thanks, 198.49.180.40 21:57, 15 August 2007 (UTC)

It's easiest to grab a financial calculator and plug in the cash flows manually.... —Preceding unsigned comment added by Trompelamort (talkcontribs) 23:45, 23 February 2008 (UTC)

RE: existing formula for Bullet (all at once)[edit]

Does the following

FV(A) \,=\,A\cdot\frac{\left(1+r\right)^n-1}{r} \,=\,A\cdot Sn|r

accurately reflect the calculation for the "Bullet (all at once)" type of amortization described in the article, where FV basically represents the single future-payment payoff value (after N periods)?

198.49.180.40 22:07, 15 August 2007 (UTC) Amoritzation really facinates me. I enjoy frequently looking up what my life would be like if I ventured to buy that new boat or car. I lack confidence though, so this is as far as I'll ever get. I just love the war it works:) —Preceding unsigned comment added by 205.125.169.98 (talk) 17:35, 8 January 2008 (UTC)

Prepayment?[edit]

What exactly is the effect if you make extra payments on an amortized loan? For example, lets say you have a 30 year mortgage for $200,000 at a fixed rate of 6%. For the first ten years you just make the standard payment given by the amortization schedule. Then, at the start of year #10, you decide to make an extra payment of $20,000. What will this do? I understand that it won't affect the amount of your monthly payments, it will instead reduce the term of the loan. But can anyone give more detail? In this example, exactly how much will you save in total interest payments by making that $20,000 extra payment in year #10?

It seems like you have already been paying most of the interest in those early years of the loan, because of the way the amortization schedule is set up. So, if you decide to make extra payments later, I have a hard time seeing how it will reduce your interest payments as much as it should. Do they re-calculate a new amortization schedule starting from the time you made the extra payment, and then divide up your new balance in such a way that you'll continue to make the same monthly payments that you had previously been making? Deepfryer99 (talk) 04:31, 5 March 2008 (UTC)

Answer: actually, contrary to the article itself, whether an overpayment will reduce the term of the loan or reduce the ongoing monthly payments will depend on the exact rules of your particular loan. Certainly in the UK, many mortgages are recalculated on a yearly basis, so if you make an overpayment, your monthly payments will reduce at the end of that year, to keep the loan term the same.

As far as your worries about the benefits of the overpayment are concerned, you will save the interest on the overpayment amount from the date you made the overpayment. Your overpayment will be subtracted from whatever you owe at the time you made the overpayment. 136.8.150.6 (talk) 12:31, 20 March 2009 (UTC)

Missing assumptions for example[edit]

It appears that between April 10, 2009, and April 21, the initial conditions for the loan and the amortization table were deleted. The missing text begins after this line:

This amortization schedule is based on the following assumptions:

I hesitate to jump in and correct it. I prefer to defer to the original author or editor. However, the missing information is essential for understanding the following three paragraphs. —Preceding unsigned comment added by Eesnyder (talkcontribs) 22:40, 7 December 2009 (UTC)

I agree, this paragraph doesn't make sense as is because it keeps referencing "the above example", but there is nothing above! daviddoria (talk) 01:10, 2 June 2012 (UTC)