Complete guide to the loan calculator: Equivalent principal, Equivalent principal and real cost

The loan calculator answers three questions first.

The real concern of borrowers is not usually an isolated “month supply”, but rather the affordability of the month, the amount of interest that will eventually be paid and the value of early repayment. The loan calculator can help you to compare the loan amount, annual interest rate, duration and repayment method to the principal, interest, surplus balance and total cost per term. It is a budgetary tool, not a result of bank approvals; The actual contract may also include fees, insurance, interest-rate penalties and interest rate adjustments.

Three things are confirmed before use: whether the loan is actually paid or the principal amount of the contract, whether the interest rate is fixed, floating or phased, and whether the repayment is made in the form of an equivalent principal or an equivalent principal amount. When the calibre is not consistent, the more accurate the tool is, the greater the misleading.

The mathematical structure of the two ways of repaying.

Equivalent

The repayments at the principal equivalent are roughly fixed at each instalment. Sets the principal amount of the loan P, the monthly rate is i, the total period is nLight M Is:

M = P × i × (1 + i)^n / [(1 + i)^n - 1]

Interest is equal to the remaining principal amount of the prior period multiplied by the monthly rate of interest and the principal amount of the current period is equal to the monthly amount of interest less. Interest was high in the prior period and the latter principal in the later period was gradually increasing. If the annual interest rate is 4.8%, the monthly rate is usually applied 4.8% / 12 Calculated, except that if the contract is based on interest-bearing or other commutation, the contract shall prevail.

Equivalent principal

The equivalent principal divides the principal on average to each period:每期Ben.Kim. = P / n。 Interest per period decreases with the remaining principal and is therefore provided monthly from high to low. The initial pressure is usually higher than the equivalent, but the total interest is often lower. Suitable to those with more stable income, sufficient prior cash flows and a desire to reduce interest.

There is no absolute “better-for-money” in either way. Equivalent principal is exchanged for a more stable monthly supply, and the equivalent principal is exchanged for lower total interest from higher payments in the prior period. The monthly peak, the duration of the holding and the opportunity cost of funding are to be viewed together in comparison.

Enter how to fill out fields

• Loan amount: Principal amount not “primary plus projected interest”. The down payment, the bond and the paid costs should not be duplicated.
• Annual interest rate: Recognized as a percentage or decimal and confirmed as a preferential period rate. Floating interest rate loans can create a situation of upward and downward adjustments, respectively.
• Duration: Enter in months or years, note 30 Year equals 360 Period, not equal 30 Period.
• Repayment: Consistent with the contract name. The “advanced” “repayable” of some products does not fall under these two standard models.
• Cost: If the tool provides a handling fee, insurance or service fee, fill in the actual one-time or one-time amount; Add a separate sum to the results when no fields are available.

Operational steps to reconcile results

1. OpenLoan Calculators, enter the principal, duration and base rate of interest in the contract.
2. The principal and principal equivalents are selected, respectively, to preserve the first, last and total interest and total repayments of two groups.
3. Comparison of monthly supply with disposable income. The budget should not be limited to “bank-permitted ceilings”, but should also allow room for cost-of-living, contingency and interest rate increases.
4. The first and last instalments of the amortization tables are reviewed to confirm the direction of the principal, interest and balance of each instalment. Equivalent principals are usually entered in the wrong mode if interest at later periods remains completely unchanged.
5. Do the rate pressure test. For example, raise the annual rate. 1 Percentage points, comparing monthly provision with total interest, and assessing whether the repayment will continue when income falls.
6. One-time costs are added to the total cost to calculate the effective cost rate. The contract is preceded by a formal bank repayment plan and a review instrument of the terms of the contract.

Error contrast: Low monthly supply does not equal low total cost

Inverse: Borrowing 600,000 Dollar, annual rate 4.5%, the duration is from 20 Year extension 30 Months may decline significantly in years, but the extra 120 periods will allow for a substantial increase in total interest. Long-term costs can easily be ignored if one looks at the “hundreds less per month” in the advertisement.

Real scene: two options for comparing renovation loans

Cho needs to... 200,000 The bank gave the following plan:5 Annual equivalent principal, annual rate of interest 5.2%； Option B:3 Annual equivalent principal, annual rate of interest 5.6%。 A is more stable and suitable for those whose income is fixed on a monthly basis but who need to retain cash; The first period is higher, but interest may be lower because of shorter duration and the rapid decline in principal. Minor weeks should be preceded by deductions for monthly rent, cost-of-living and contingency payments, and then by the affordability of the first and peak periods.

If the small week is expected to end with a year, the bank will be required to confirm whether partial early repayment can reduce the duration or monthly supply and collect default payments. This potential early repayment is re-generated as an additional cash flow, rather than directly subtracting the “end-of-year award” from total interest.

What do you think of early repayment?

The core of early repayments is a comparison of “certainizing future interest savings” and “alternative gains from the use of this cash”. The amount of settlement, default and interest at a given date are first sought from the lending institution and the amortization table is used to identify future interest avoidable. Interest that has already been incurred cannot be recovered and historical payments cannot be counted as early repayment gains.

(b) If a “cut-off period” is chosen, the month may be substantially unchanged but more quickly closed; The choice of “low monthly supply” is usually less expensive with light cash flows and less interest. There is also a need to retain at least a few months of living and medical care, unemployment contingency, and not to reduce liquidity to zero in order to save interest. The loan calculator can only be compared in the circumstances, ultimately based on the written quotations from the bank.

Changes in interest rates and real costs

Floating interest rate loans should be calculated at least three scenarios: benchmark, up and down. Interest rate changes usually take effect at the time of the heavy pricing, and do not necessarily affect the month-to-month delivery immediately. If the tool only enters a fixed rate, it can run several times separately and the date of entry is recorded in the table.

The real costs include interest, account management fees, guarantees, insurance premiums, assessment fees, early repayment of defaults and interest payments. One-time costs should be recorded at the time of actual payment and an annualized rate cannot be considered the same as the loan rate. For short-term loans, fixed costs of several thousand dollars may be more important than differences in interest rates; The impact on long-term loans, interest rates and durations is usually greater.

Data entry should use, to the extent possible, the amount de-sensitized and the assumed rate. The online tool is suitable for local quick estimates and does not paste bank card numbers, identification numbers or full contract scans. If the results are used for joint household decision-making, the input, date and version are kept to avoid the uncertainty of the difference as interest rates are updated.

FAQ

Save the amortization to avoid only one month's worth of supplies.

Loan decisions require a balance curve rather than a promotional figure. It is recommended that the principal, interest and balance of the first, twelfth, thirty-sixth and previous periods be saved, with special mark date for the interest rate to be re-pricing. Regenerated plans after each advance payment and recording differences between actual deductions and projections. If the bank uses daily interest rates, changes in holidays or days of deduction may also result in small differences in the amount for a given period.

The co-borrower should also agree on who is responsible for repayment, how to make up the account balance when insufficient, and who will decide on early repayment. Family income is divided into fixed wages, bonuses and uncertain incomes, with a fixed proportion of the basic monthly allowance to be used as far as possible, and the bonus is used for optional early repayments. No one should borrow another loan of high interest to satisfy one of the calculations; In the event of a risk of successive delays, the loan institution should be contacted as soon as possible, rather than waiting for interest rates to roll.

If the loan is used for operations or investments, the monthly provision should not be covered by the expected income alone. Reserve cash for at least multiple repayment cycles is prepared and stress tests are conducted for declining income, delayed payments by clients and rising interest rates. The calculator results can help you raise questions, but they cannot be a substitute for cash flow reviews, legal opinions or formal bank contracts.

Conclusion: Cash flow decisions before interest optimization

The correct use of the loan calculator is to translate the contract into comparable cash flows. Run the equivalent principal and principal, check the interest rate cycle, duration, cost and early repayment rules, and then test the pressure of the lower income and the higher interest rates. Monthly supply is only an entry point, and what really affects long-term finance is total interest, liquidity and whether you can continue to pay on schedule.