Time Value of the Money
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Prepayment vs. Investment Analysis – Interest.com
In managing ones own finances, as well as those of a business, there are numerous decision situations where applications of “Time Value of Money” (TVM) concepts and methods help one assess the financial consequences of alternative courses of action. One such situation is the decision to prepay part or all of ones mortgage or loan balance by making extra periodic principal payments.
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Select the “Mortgage Calculator” and determine what the payment would be for a $135,000 loan, amortized over 30 years (360 months) at 8% nominal annual interest. What is the total value of the payments to be made over the loans life? Also, view an amortization schedule of the loan.
The Monthly Payments is: $990.58
The total value of payments is: $356,608.8
Every Christmas you receive $5,000 from a rich relative. So you plan to pay an extra (in addition to the normal monthly payment) $5,000 on your mortgage next January and every January thereafter. Enter the previous loan information and make the start of the mortgage this month. Enter “5000” for the additional payment and specify that you will make this payment 1 month per year. The start of the additional payment will be the next January. What is the average monthly payment under this plan? How long will it take to pay off the loan? How much money do you save in interest over the loan?
The Monthly Payments is: $990.58
The loan will be pay off in: 12 years
The money save in interest is: $137,873.24