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Loan repayment formula

Discussion in 'Financial Aid' started by s.mutans, Jan 8, 2003.

  1. s.mutans

    s.mutans Senior Member

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    PLEase confirm this formula.

    (Total cost for Four years)(percentage rate) + (total cost for four years)

    divided by

    240 payments(20 years) = monthly payment


    i.e.

    (200,000)(.08) + (200,000)= 216,000

    216,000/ 240= $900 per month.

    Right?
     
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  3. mpp

    mpp SDN Moderator
    Moderator Emeritus

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    Sorry to be the bearer of bad news but you're not right. The interest is earned each year and must be paid on top of the principal payments that will pay down the loan. The formula is a little bit more complicated than that. It would be:

    Payment = P*(I/12) / (1-(1+I/12)^(-n))

    Where P is the principal loan amount, I is the APR interest rate, and n is the number of periods.

    In your case the monthly payment would be $1672.88

    The best way to figure out payments is to use a financial calculator or you can use Excel. The formula for use in Excel would be

    =PMT(0.08/12,240,200000,0)

    or =PMT(I,n,P,FV)

    where P=principal, I=Interest per period, n=number of periods, FV=final value.

    Good luck.
     
  4. camilagrace

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    The loan is repaid by way of EMI on your total amount. When I had taken the home loan I calculated its EMI on the basis of the below mentioned mathematical formula:
    [P x R x (1+R)^N]/[(1+R)^N-1
    where P stands for the loan amount or principal,
    R is the interest rate per month [if the interest rate per annum is 11%, then the rate of interest will be 11/(12 x 100)],
    and N is the number of monthly installments.
    EMI calculator is also based on this basic formula.
    Source: http://emicalculators.in/
     

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