Example 1 - Conventional Mortgage or Loan

This example applies to our online demo Time Value of Money Calculator. The C-Value! program for Windows works in a similar way and has a few more features. Note, our online demo TVM calculator is limited to calculations using interest rates between 4.0% and 5.99%

Conventional mortgage or loan with an unknown payment amount and regularly scheduled payment periods.

This example goes into more detail than any other example. At first, it may seem as if a lot of steps are required to create a simple loan calculation or amortization schedule. Actually, that's not the case. Many of the steps described below are not required every time you are preparing a calculation, but we feel we need to mention these optional steps here, only if to assure that your program is set the way we expect it to be.

Note: Dates in all examples are shown using the US convention of MM/DD/YYYY. Purchasers of this calculator may make changes to use any convention.

1. Confirm that the TVM Calculator's settings are set for a conventional loan. You may confirm this by checking calculation options window. These will also be the default settings and you'll rarely need to change them, but you should certainly know about them. The setup window is viewed by using one of two methods:

• Click on the {Setup} menu choice at the top and select {Set calculation options...}. (Menu choices are shown inside curly braces {Menu Choice}.), or;
• Press [F5] (specific keyboard keys are inside square brackets [Key].)

1. 1. On the "Compute/Amortization Methods" page set the compute method to "Normal".
   2. Click on the "Days Per Year" tab. Set the "Days In Year" to "360". (Again, you only need to do this if you are trying to match our examples.)
   3. Click on the "Interest Calculation Options" tab. If the initial period is longer than your normal period set the interest option to "Collect with first payment". If the initial period is shorter then your normal period set the option to "Reduce all payments". (Initial long and short periods are explained on the options window.)
   4. Our examples do not use the "Canadian Method", so you do not need to make any settings on the final tab on this window.
   5. Click [OK] to close the window and save your settings.

2. Clear any prior inputs by selecting {New…} from the {File} menu choice or by clicking the [New] button on the calculator's bottom left.
3. Select a "Compounding" frequency. Monthly compounding is most typically used.
4. Enter the "Nominal Annual Rate". All rates are entered as a percentage (not as decimal equivalent). That is, for a 5.5% enter 5.5. The user does not type the percent sign in.
5. Click on the first row of the cash flow area. For the first row, set the "Event" to Loan.
6. Type [Tab] to move to the "Date" column. This date, called the loan date, is the date the monies become available. It is sometimes known as the origination date. If you are borrowing money and the bank gives you the money on September, 1 2011, then you would enter 09/01/2011 or use the drop down calendar to set the date.

7. Hit the [Tab] key to move to the "Amount" column. Enter the amount of the loan. For this example, enter 250,000.00. When entering numbers, do not enter commas. They will be entered for you. Also, there should not be any need to use the [backspace] key or [delete] key to clear a value. If you use the [tab] key to move to the amount column or click in the column with your mouse, the current value will be selected. Just start typing to clear it.
8. Hit [Tab] to move to the "# Periods" column. For normal loans, monies are only advanced once. Therefore, for 99.9% of all loan events, you'll want to enter a 1 in this column.
9. For a loan event with one period, there are no other settings that need to be made in the first row.
10. Hit [Tab] again. This will cause a second row to be inserted into the input area. For the "Event", select Payment if it is not already selected.
11. Hit [Tab] to move to the "Date" column. Enter the date that the first payment is due. Please enter 10/01/2011.
12. Type [Tab] once more to move to the "Value" column. Since the payment amount is unknown, type a U. The word "Unknown" will be displayed.
13. Hit [Tab] again to move to the "# Periods" column. For this example, we'll assume a 15-year loan with monthly payments. Enter 180
14. Type [Tab] again. This time, your focus will move to the "Frequency" column. Select Monthly. This tells the TVM calculator that you want the payment frequency to be monthly starting with the first payment due on October 1st, 2011.
15. We are now ready to calculate the unknown value. Your screen should now look like this:

• Click on the [Calculate] button at the calculator.
• Click on the {Calculate} menu choice and select {Calculate Unknowns}.

The word "Unknown" will be replaced with the monthly payment amount. Assuming you are using the standard default settings the result will be $2,042.71.

15. If you want to see a detailed amortization schedule showing how the monthly payment is allocated between principal and interest, click on the "Amortization Schedule" tab above the input area.

Back to the online Time Value of Money Calculator.