Example 10 - Loan & Series of Extra Payments

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 2.0% and 8.9%

Conventional loan or mortgage with regular payments plus a series of regular extra principal only payments, starting with the 38th payment.

Here's an example of creating a loan schedule with a single, random extra payment.

For greater detail about how values are entered into the TVM calculator, please see Example 1 - conventional mortgage or loan.

To create a loan schedule with a series of extra payments, follow these steps.

1. Click the [New] button to clear any previous entries.
2. Set "Rounding" to "Ignore" by clicking on the "Rounding" button.

3. Set "Compounding" to "Monthly"
4. Enter 6.5% for the "Nominal Annual Rate"
5. Create a "Loan" event in row one of the cash flow input area.

1. Set the "Date" to May 1, 2012 (mm/dd/yyyy)
2. Set the "Amount" to $255,600.00
3. Set the "# Periods" to 1.

6. Click on the second row of the cash flow input area. Select "Payment" for the "Event" type. For this example, we will assume we want to create a schedule for a typical mortgage payable over 30-years. Initially, the regular payment amount is unknown.

1. Set the "Date" to June 1, 2012
2. Set the "Amount" to "Unknown"
3. Set the "# Periods" to 360.

7. Calculate the unknown. The result is $1,615.57
8. Next, to prepare to enter the extra payments, the payments in the cash flow screen need to be expanded. To "Expand" the payments, click on the [Expand] button on the button bar.

You should now have a total of 361 rows made up of one loan row and 360 payment rows.

9. Scroll the cash flow area to row thirty-nine. We've decided that we want to make payments that are $200.00 more than the regularly scheduled payment amount. Therefore, change the payment amount (this is the 38th payment, 07/01/2015.) from $1,615.57 to $1,815.57. (To change the value, click on the cell. Change the number and [tab] off the cell to "set" the new value.)
10. Sort the payments. (Sort is the opposite of "Expand") by clicking on the "Sort" button on the button bar.

You should now have a total of four rows made up of one loan row, 37 regular payment rows of $1,615.57, the adjusted payment row, and 322 more regular payment rows.

11. Click In the fourth row

1. Change the "Amount" to $1815.57
2. Change the "# Periods" of payments to "Unknown".

• The point of making the extra payments is to save interest expenses, which in turn, shortens the term of the loan. Let's see how this series of extra payments impact this specific loan.

12. Our extra payments will make it so the final payment will have to be an irregular amount. We need to tell TVM calculator how to handle this irregular amount. We do this by setting the rounding option. To set the rounding option, click on the "Rounding" button:

1. The "Rounding Window" will open. We suggest you consider one of two options:

• If you want the final payment to be less than the regular payment amount, select "Balloon (create an additional payment)".
• Or if you don't mind the final payment being larger than the regular scheduled payment amount (but less than the amount of two regular payments), you may select "Last Payment" on the "Rounding Window".

1. Make your selection and click the [OK] button to close the rounding window.

13. Click on "Calculate". Our extra payment will make it so the final payment will have to be an irregular amount.

• If you selected "Balloon..." as the rounding option, then the final payment will occur at payment number 283 (rather than the original number of payments - 360) and the payment amount will be $775.92 (this can be confirmed by looking at the schedule);
• If you selected "Open Balance" for the rounding option, the final payment will occur at payment number 282 and the final, unadjusted balance will be $771.74..

14. And, as usual, if you want to see a detailed amortization schedule showing the monthly payment allocated between principal and interest as well as the impact of the "extra payments", click on the "Schedule" tab above the input area.

15. Additionally, the charts clearly show visually the impact of the extra payments.

Back to the online Time Value of Money Calculator.