Tuesday, 12 February 2008 20:57

This is an example for the loan calculator. This calculator compares annuity, linear and interest-only mortgages.

Suppose you would like to buy a house of \$ 300000. The house is financed with a mortgage and you want to pay off this debt within 20 years. The bank charges 5% nominal interest per year and the payments are at the beginning of each month. The bank also charges 1% initial costs.

Enter the following into the loan calculator for computing the monthly terms:

FieldvalueDescription
Original principal balance (\$)300Enter the loan amount, excluding costs.
Nominal Interest Rate (%)5Enter the nominal interest rate.
Periodic repaymentsLeave this field empty to indicate that it must be calculated.
Number of periods20*12 (months)the debt should be repayed within 20 years, which is 20*12 months.
Remaining debt0After 20 years a zero debt should remain.
Time periodic repaymentsin advanceThe terms should be payed before the beginning of each month. This is the usual situation.
Costs in advance0.01*300This is equal to 1% costs over the total debt.

After clicking Compute the monthly term amount appears below for a linear mortgage, a fixed term mortgage and for a interest-only mortgage. If you find the monthly amounts too much then you could enter the maximum bearable monthly amount in the form and leave the field Remaining debt empty. In that case you are computing how much you still have to pay after 20 years. Instead you could also choose paying terms for more than 20 years. In that case you leave the field Number of periods empty and have the calculator compute it.

Suppose you know that you will earn every year 2% more in the coming 20 years. In that case you could also choose to increase the monthly terms by 2% each year. By entering this into the annuity calculator with indexation you can estimate the number of terms for increasing repayments.