YOUR ACTION PAY

Archive for the ‘Loan Payments’ Category

When a person takes a loan for a house, a car or any other major purchase he/she is making a large commitment that may involve monthly payments for up to 30 years. That means a total of 360 payments, a large commitment over a long period of time. A loan is something that needs to be taken seriously. The borrower is at a huge advantage when entering an obligation like this is he is aware of four items before even talking to a loan officer.

1. The expected payment.

2. The impact the interest rate has on the loan.

3. Where the borrower will stand with respect to the loan at any given time in the future.

4. The impact on a change in the interest rate if a variable interest loan is entered into.

The answers to all of these questions are provided with an amortization table. In this article I want to show you how to quickly and easily build and amortization table. In so doing we will find the answers to the four points mentioned above.

Loan Payment

If you have not taken out the loan yet, the first thing that you want to do is to calculate what your expected loan payment will be. If the loan has already been entered into you already know the answer to this question. For those who are pro-actively looking into a major purchase I will quickly show how to calculate what the loan payment will be. This can be done very easily in Microsoft Excel. Many hand calculators provide this calculation too. I will demonstrate with the use of Excel.

The structure of the \”Payment\” formula looks like this: =PMT(annual interest rate/12, number of periods (months), present value).

For example: If you are going to buy a $300,000 house and pay for it over 30 years (360 months) and you have negotiated a fixed interest rate of 6%, here are the exact entries you would make in Excel:

=PMT(.06/12, 360, 300000)

And our answer would be $1,798.65. Our monthly payment will be $1,798.65.

Before we proceed with building the table you may want to look at the total amount paid. $1,798.65 per month x 360 (months) = $647,514 dollars. More than double your initial purchase cost. Now let re-calculate the same house loan for 20 years and see what the differences are.

=PMT(.06/12,240,300000)

The monthly payment will be $2,149.29.

$2,149.29 x 240 = $515,830. If you paid for the house in 20 years you would be paying $350.64 more per month but you would pay a total of $131,684 less. A serious consideration to make before entering into a loan is how long you are going to have the loan for. Of course, with most home loans you can make additional payments but when a loan is taken out for a certain dollar amount, that amount usually goes into your budget and it is hard to keep up consistent payments above it.

Let us assume that our borrower looked over the facts and decided that a 20 year loan was better for him. He liked the idea of saving $131,000 over the life of the loan.

So far we have agreed on a price for the house ($300,000) and decided on the term (20 years). Interest is another thing that is sometimes slightly negotiable. In fact, with a shorter loan you may be able to get a discount on the interest charged. And remember, one tenth of a percentage point makes a difference over 30 years. In our example we can assume that 6% is the best possible interest rate.

Building the Amortization Table

When I do an amortization table I put three data points right at the very top on the left hand side, like this:

Initial Value: $300,000

Interest Rate: .06%

Term: 240 months

Then we need to add the following columns:

Number

Date

Beginning Balance

Payment

Interest

Repayment of Principle

Ending Balance

For period one the data would be:

Date: 1/1/2008

Beginning Balance: $300,000.00

Payment: $2,149.29 (the value we calculated above)

Interest: $1,500.00

Repayment of Principle: $649.29

Ending Balance: $299,350.71

For period 2 we would have:

Date: 1/1/2008

Beginning Balance: $299,350.71 (the same as th ending balance from the previous period)

Payment: $2,149.29 (with a fixed interest rate this value stays the same)

Interest: $1,496.75

Repayment of Principle: $652.54

Ending Balance: $298.698.17

Of course, you would put this all in an excel table and here are the formulas you would use.

• Uner the Number column we will enter 1-360, the number of the payment.
• Beginning Balance will for the first month be $300,000 and for each subsequent month it will be the previous month minus the Repayment of Principle. For example, for period 1, the beginning balance is $300,000 and the repayment of principle is $649.29 so the beginning balance in month 2 is $299,350.71.
• The Payment will be the same every month as long as the interest rate does not change. We calculated the payment to be $2,149.29 per month.
• The Interest will be the Beginning balance for the month multiplied by .06 and divided by 12. For the first month take $300,000 x .06 /12 = $1,500.00.
• The Repayment of Principle will be the Payment minus the Interest. For the first month repayment of principle will be $2,149.29 – $1,500 = $649.29.
• The Ending Balance is calculated by Subtracting the Repayment of Principle from the Beginning Balance. $300,000 – $649.29 = $299,350.71.

The values for the last two months of data are as follows:

Number: 239

Date: 11/1/2027

Beginning Balance: $4,628.01

Payment: $2,149.29

Interest: $21.34

Repayment of Principle: $2,127.95

Ending Balance: $2,140.06

Number: 240

Date: 12/1/2027

Beginning Balance: $2,140.29

Payment: $2,149.29

Interest: $10.70

Repayment of Principle: $2,138.59

Ending Balance: $1.47

Note that on your last payment (240 in this case) the ending balance should be very close to $0. In this case it is $1.47 which represents a number as close to $0 as could be arrived at without paying a percentage of a cent every month.

Benefits of the Amortization Table There are several benefits of having an amortization table before you enter a loan as well as after the loan has been agreed upon and signed.

1. You will be able to see, on paper, what your loan will look like for the entire period. This will cause a person to stop and consider, is this the best method of obtaining whatever am I buying? Should I pay over a shorter (or longer) period? Am I over-extending myself? Having facts and figures down on paper, for you to look at, helps in the decision process.

2. If you want to know exactly where you are or where you will be at a certain time in the process of paying off the loan you have the figures right in front of you.

3. If the interest rate changes you can easily adjust the interest column and see what the impact will be.

4. It will act as a check and balance against the agency you take the loan from. If there are any \”hidden\” charges in the loan that you are not being told about you will be able to spot them quickly. If their payment amount does not match up to yours either exactly or within a couple of pennies, something is amiss.

5. It will help greatly in the bargaining process. It is much easier to bargain with a sales or finance person if they see that you are intelligent about the subject and know they cannot sell you a bag of hot air.

Conclusion I highly recommend building an amortization table before a major purchase is made. It will help you make the decision as to how long of a loan you should enter into, what the impact of the interest rate is and the impact of a change in interest rates. It will also help in the bargaining process when making a large purchase. If you follow the instructions here, it is really a very simple process and well worth the time and effort.

Loan payment protection insurance is just one of a family of protection policies that can be taken out to help you get through tough times such as unemployment, illness or sickness which means a loss of income. If you did lose your income you would still have bills to pay. Of course you could apply for State benefits, but in some cases this might not provide enough money to pay all your essential outgoings, it might not even be enough to keep food on the table.

You would have to consider how you were going to provide for your family, pay your heating and lightening bills, your mortgage and of course any loan or credit card payments that you had to make each month. A loan payment protection policy would provide you with the money you needed to be able to carry on paying your lender.

For a fixed premium each month based on your age and how much of your payment you wanted to protect you could have peace of mind. The policy would provide you with the sum you insured against if you should have to take time away from work due to an accident or sickness. It would also provide for you if you should become a victim of unemployment by such as redundancy. Cover would mean that you would be able to concentrate on making a recovery from your illness or accident. If you were unemployed it would give you the breathing space needed to be able to look around for work. Jobs are hard enough to come by and of course you would want one that paid an income equivalent to the one you lost.

Loan payment protection insurance can be added into the cost of borrowing when taking on the loan. High street lenders will try to push their protection onto you and some may even suggest that the loan depends on it. You always have the choice of being able to shop around for your protection and buy it independently from a specialist provider. By choosing to buy cover as a standalone policy you will pay a premium for the cover alone. If you have it added into the loan when borrowing sometimes the total cost of protection is added on and then interest is added onto the loan on top. This means you are not only paying interest for the borrowing, but also the protection for it.

Specialist payment protection providers can save you an enormous amount of money while at the same time providing you with quality cover. When shopping around for your loan payment protection insurance you have to check not only how much the premiums would cost but also the terms and conditions. Some providers offer protection that would begin to provide you with a replacement income to cover your loans from 30 days. However some ask that you wait for anything up to 90 days. A policy can run for 12 months or some providers will extend this for up to 24 months. All policies only pay out for a certain amount of time and then they cease, so always check before buying.

Florida is a very interesting and lucrative marketplace for mortgage loans because of the number of players involved. This encourages competition and makes low interest rates possible. Competitive interest rates allow for lower mortgage loan amortization across all loan programs. If you are planning on getting a mortgage, be sure to obtain a list of the different mortgage companies and lenders to avail of the best rates. Here are some of the current rates in Florida that can help you determine the average rate. Please take note that rates change through time.

Fixed-rates in Florida

For a loan amount of up to $417,000 at a thirty-year period, average interest rate is pledged at 6.25 percent a month. The lowest could reach 5.875 percent. For the same conforming loan amount at a fifteen-year period, the average is at 6 percent and lowest could reach at 5.625 percent.

Fixed-rate jumbo

For loan amounts that exceed $417,000 at a thirty-year period, the average interest rate is at 6.5 percent and the lowest rate could go up to 6.25 percent. For a fifteen-year period that exceeds the same loan amount, the average is at 6.5 percent and could go as low as 6.125 percent.

Balloon payments

For balloon payments with a loan amount of up to $417,000 for a five-year period, the average interest rate is at 6.5 percent while the lowest could go up to 5.250 percent. For a seven-year period at the same range of loan amount, the average rate is also at 6.5 percent and could go as low as 5.5 percent.

Adjustable rate mortgages (ARM)

For adjustable rates with a one year term and a loan amount up to $417,000, the average interest rate is at 5.5 percent and could go to as low as 1.25 percent. For adjustable rate mortgages that exceed a loan amount of $417,000 (also called an ARM jumbo), the average is at 5.6 percent and could go as low as 1.25 percent.

Providing you have looked into what loan payment protection can and cannot do then it can be a very worthwhile addition to what you already payout each month. Problems only arise when cover is taken on without knowing anything about it and if you have not checked for suitability for your circumstances. A policy does not have to cost a fortune each month if you shop around for the lowest premiums. However many individuals fail to realise that they do have the option of shopping around for a policy.

Many who were mis-sold cover were done so after having it added onto the borrowing at the time of taking the loan. Along with being mis-sold a policy because they were not given the information needed to be able to decide if it was suitable, they also paid over the odds and contributed to the

If you want to get a quality product that you know you can rely on while at the same time getting the cheapest quotes for loan payment protection insurance, you should go with a standalone provider. However, it isn\’t just about cost – you should compare the policy terms and conditions as well as the benefits too in order to get the right cover for you.

It is the terms and conditions which will determine how suitable a policy is for your circumstances. There are exclusions which can be found on a regular basis in all policies. If you are self-employed, retired, suffering a pre-existing medical condition or are only in part time work then loan cover might not be suitable for your circumstances. Check that the provider has not included others though because they can vary.

So how can loan payment protection insurance help you? This invaluable protection could provide a financial a lifeline if you were to find yourself unable to work. Being off work after suffering from an accident, contracting an illness or becoming unemployed through no fault of your own all come under loan protection cover.

The amount that you are asked to pay for having this financial security for your repayments will depend on the provider. An ethical standalone provider will tend to charge the lowest premiums while at the top end of the scale are the quotes given by the high street lender at the time of taking out the borrowing. Sadly many individuals do not realise they can shop around and take out loan payment protection insurance independently of their loan provider.

High street banks rake in hug profits from the sale of loan cover which is often pushed at the time of borrowing. In some cases cover was added onto the cost of the loan without the individual being aware or being told about the exclusions. This led to many buying loan insurance they could not claim against and the start of an investigation by the Office of Fair Trading and the Financial Services Authority.

Faith in payment protection insurance has been lost but it is important to remember that the cover is not the problem. When the individual is alerted to any exclusions as well as the terms and conditions then it can work in the way it was intended. It is the poor selling techniques that have caused the majority of problems.

Loan payment protection insurance along with the rest of the family of protection policies should become more transparent in March 2008. This sees the introduction of tables which can be used to compare the different payment protection products. Along with this the exclusions will be pointed out and how much the cover will cost in total. This should be one of the changes for the better and it is hoped that many more will follow. The peace of mind that you would have a tax free income with which to continue servicing your loan repayments should you become unable to work doesn\’t need to be expensive nor hard to find. It allows you to concentrate of getting better and returning to work.