Global Financial Crisis (21 Viewers)

[ßöмßäяðîëя]

Compounded and recalculating are different. Compounding specifically is adding interest to the principal balance, like a credit card.

I pay over my mortgage payment every month, so my principal is reduced at a greater rate than the original amortization schedule predicted. At the end of the year, on my yearly statement, it shows the "new" amortization schedule for the upcoming year based on the rate recalced to the new outstanding principal balance.

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If it was truly compounded, semi-annually, then every six months your outstanding principal balance would jump by X amount, which it doesn't. It's always a decreasing amount.

 

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[s4tch]

Compounded and recalculating are different. Compounding specifically is adding interest to the principal balance, like a credit card.

forget your own mortgage for a second or strickland's case

how do you calculate the total monthly payment (principle+interest) for a mortgage? let's say for the sake of simplicity: fixed rate at 7.2% p.a. (so 0.6% per month), $200k, 20 years

 

[ßöмßäяðîëя]

forget your own mortgage for a second or strickland's case

how do you calculate the total monthly payment (principle+interest) for a mortgage? let's say for the sake of simplicity: fixed rate at 7.2% p.a. (so 0.6% per month), $200k, 20 years

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@s4tch

PM me your email and I will send you the Excel sheet to play with, if you'd like.

 

[GordoDeCentral]

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@s4tch

PM me your email and I will send you the Excel sheet to play with, if you'd like.

That's compounding they just call it amortization schedule for marketing reasons

 

[s4tch]

exactly

again, how did you calculate the monthly payment? i mean the $1574.70. which formula did you use? (i know just want you to understand why it's compounded, just bare with me)

 

[ßöмßäяðîëя]

exactly

again, how did you calculate the monthly payment? i mean the $1574.70. which formula did you use? (i know just want you to understand why it's compounded, just bare with me)

Run your numbers with Compounding and look at mine for simple. Look at the total cost of the loan.

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That's compounding they just call it amortization schedule for marketing reasons

"they"

I created this, I can change it to whatever I want.

 

[Strickland]

https://www.thetruthaboutmortgage.com/are-mortgages-simple-interest-and-compounded-monthly/
Mortgages Are Simple Interest

• Simple interest means it’s not compounded
• So you don’t pay interest on top of interest
• What you owe in interest is pre-determined on a home loan
• And paid over the life of the loan

Here in the United States, mortgages use simple interest, meaning it is not compounded. So there is no interest paid on interest that is added onto the outstanding mortgage balance each month.

Conversely, think of an everyday saving account that offers you compounding interest. If you have a balance of $1,000 and an interest rate of 1%, you’d actually earn more than 1% in the first year because that earned interest is compounded either daily or monthly.

Put another way, you earn interest on your interest each day or month, which allows your money to grow more quickly.

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@Strickland

Are you trying to stabilize your monthly payment or pay off the principal faster?

I'm trying to put together a narrative for a piece on how the euribor hike has impacted the financial situation for young persons, young families, who have recently taken out longterm mortgages. Right now the narrative in mainstream media feels scripted by the bankers. Since mine is a small country its easier to impact fiscal policy and put some pressure on the financial institutions to provide better alternatives, f.e. decent fixed rates without euribor as elsewhere in Europe.

One thing I was trying to figure out was whether it was more accurate to use the delta between the sum of monthly payments before and after the spike or the delta between only the interest rate payments. Banks always talk about the increase in monthly payments, but I think the true cost is larger, as it impacts future payments as well and the growth in interest payments paints a more truthful picture.

As for me personally I'll probably threaten my bank to refinance elsewhere, look for some options and see what is the best they can offer me. So far they havent been very cooperative.

 

[ßöмßäяðîëя]

Okay, you're doing exactly what I was going to suggest anyway.

 

[s4tch]

Run your numbers with Compounding and look at mine for simple. Look at the total cost of the loan.

your table is fine, but you didn't answer my question. you used this function: https://www.ablebits.com/office-addins-blog/excel-pmt-function-formula-examples/ look for "annuity" which is by default compounded, that's the point gordo made

thanks for mentioning total cost of the loan. it should be loan + loan*interest rate if it was simple interest. and it's not.

of course the MONTHLY interest looks like a simple interest since it's based on one single period, and with one single period the difference between compounding and simple interest doesn't exist. to see the difference you should consider more than 1 periods. look at the whole picture and you'll get the point.