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Hi Bret,

Got it!

It took getting through a few algebra hiccups, (I was a little rusty), and finding the payment can’t be negative (which Excel produces), but works fine now. I had originally tried solving for N using the standard amortization formula (Eq(6) from your the “Derivation…” document) and kept getting stuck. Your referring me to Eq(5) as the starting point helped put me on the right track to a solution.

Thanks very much!

Rimas

Hi, Rimas. You are on the right track. If you’re looking at the “Derivation…” document, re-arranging Eq.5 to solve for N is what you need to do. (And this is how the calculator works.) Since you’re not using a balloon payment, the B term drops out, which makes things simpler. If I recall, the solution for N will look like the ratio of two Log() functions. (You can’t get around this since N is an exponent.) There should not be any recurrence relation issues, since we’re using a closed-form equation.

Hi Bret,

Love your online calculator and also looked over your PDF on “A Derivation of Amortization” … thanks for that!

The question I have is: Assume I’m an investor or a creditor, investing or loaning money: If I know (1) how much I’m investing (P); (2) what my known or desired rate of return (i) is; and (3) what the ‘payment’ received will be; and I want to solve for “N”, the number or periods it will take to recover both my invested capital plus the known or desired or expected rate of return, what is the formula (to drop into Excel) to do that?

I tried re-arranging algebraically the terms of the standard amortization formula and get spurious answers when compared to a forward calculation using the standard amortization formula.

Is it that I’m dealing with a ‘recurrence formula’ situation? Would you be able to give a suggestion as to how to set that formula up?

It appears your online calculator DOES give me the correct expected “N” if I plug in P, x, and i and solve for “N”.

Rimas

Thanks for your prompt response, Bret.

I’m glad I went to your site nevertheless. You’re right on (no pun intended)about our governement and politics and additionally your writing alluding to Heisenberg and Godel (9/08) was super! Claire

Hi Bret, Wonderful site.

When not so pressured I’ll have my husband read your comments on Heisenberg. Since retiring, as an attorney, he has become obsessed with the works of Richard Geynman, Oppenheimer,Einstein et.al.

I hold a seller financed mortgage. Because of the owner’s distressed financial condition, I agreed to modify the mortgage reducing principal which was reduced to $104,325.00 to $47,000. My concern is income tax reporting the loss of some $64,225 in principle. Would I do it now or in 9m years when the mortgage will be fully satisfied.

Since this is a tax question, it may be beyond the scope of your expertise.

Your comments please.Appreciated, Claire

Hi, Claire. This is certainly beyond my expertise. I don’t know anything about reporting such losses.

Best wishes!

Bret

Hi, Stan. Though you are carrying the note, I presume that the sale was still formalized by means of some written contract, and if so, then you are probably bound by the stipulations of that contract if it specifies pre-payment.

If you are not bound by a formal agreement, then you may want to take a look at the amortization spreadsheet which you can download from this website (see this worksheet to get you started).

This is the way standard amortization works (assume monthly payments at 6% simple interest): at each payment, the interest due is calculated from the remaining principal balance. E.g., if you still owe $20K, then the interest you owe is (6%/12 x $20,000), or $100. If the monthly payment is set at $150, then the first $100 goes to pay the interest, and $50 is goes to reduce the principal from $20,000 to $19,950. For the next payment, interest due is calculated based on this new principal balance.

One month, the borrower decides to pay $200 rather than $150. You would calculate the interest due as normal, and subtract the interest from the total payment amount. Then what’s left would go to reduce principal as always. Since principal is being reduced faster, you’ll be receiving less in total interest payments. The Excel spreadsheet shows you how the principal balance is affected by “sporadic” extra principal payments.

Thanks for the Calculator Brett, I am caring the note on a house that I owned and the new owner mentioned that she would be paying extra from time to time. I told her not to jump into that one until I learn how to calculate the extra money.Can you tell me how to do that please?

Hi Bret-

Your calculator is REALLY GREAT.

Best, most useful (and no ad fluff) calculator I’ve found! Thanks for writing it 🙂

I have a question regarding *extra payments per year*

Using your calculator, I wanted to see the end difference between simply making one extra payment a month

(13 payments of $1750/mo instead of 12)

or dividing that extra $1750 payment into 12 parts and adding that chunk to the regular monthly payment (12 per year).

(12 payments a year of $1896 instead of $1750)

-looks like doing it monthly wins out 🙂

MY QUESTION IS THIS:

When adding that extra $146 per month to my payment, should I be doing a seperate *principal only* payment of $146 alongside the regualr $1750 payment-stub payment, or just send in a check for $1896 with my payment stub?

Not sure if that makes a difference, or if your calculator assumes extra payment is principal-only, or what 🙂

Thanks for the help!

This answer to this question is determined solely by your lending institution. How larger payments are handled may be spelled out in your loan documents. If not, it’s worth a call to your lender.

Hi, Lynne. I’m afraid I don’t understand your question. The calculator is only designed to handle regular payments made at regular intervals. If this is not your situation, then the calculator will not be much help to you, and you will probably need some sort of a spreadsheet to manage the repayment schedule.

I like your blogandhave used it before. How do I get your calculator to decrease amount owed on original amount instead of increasing the amount with the interest owing. ie: before; $66,288.53 went to $66,950.97 with the payment of $500.00 now it shows the total owed with the interest included. I do not need to know this but I do need to know what is left owing on the mortgage. It is an open mortgage so it sometime changes. Thank-you Lynne