Example 12 - Monthly Skipped 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%
A "Special Series" loan with "Monthly Skipped" payments. It is assumed that the skipped months are permitted and that a level payment amount is desired.
For greater detail about how values are entered into the TVM calculator, please see Example 1 - conventional mortgage or loan.
Background: Certain businesses may need to borrow money at different times of the year to level their cash flow. Or individuals may have a career which keeps them employed for only some of the months out of the year (outside construction works may not work in January or February). There are times when these potential borrower will take out a loan which has terms that allow them to skip making payments in predetermined months when cash flow may be low or even nonexistent. This example show how to setup this type of loan.
To create a loan schedule with a regular pattern of skipped payments, follow these steps:
- Click the [New] button to clear any previous entries.
- Set "Rounding" to "Open Balance" by clicking on the "Rounding" button.
- Set "Compounding" to "Monthly"
- Enter 8.75% for the "Nominal Annual Rate"
- Create a "Loan" event in row one of the cash flow input area
- Set the "Date" to February 15, 2012 (mm/dd/yyyy)
- Set the "Amount" to $75,000.00
- Set the "# Periods" to 1
- Move to the second row of the cash flow input area. Select "Payment" for the "Event" type. Initially, the regular payment amount is unknown
- Set the "Date" to March 15, 2012
- Set the "Amount" to "Unknown"
- Set the "# Periods" to 48
- Display the "Special Series Window" by clicking in the second row's right most column under "Special Series..."
- Select the "Monthly Skip" tab at the top of the window
- Make sure "Activate Monthly Skip series for the currently highlighted event" is checked
- Set "Regular monthly amount" to "Unknown"
- Set "Amount on skipped months" to $0.00
- Check "July" and "August" for the skipped months
- Click OK
- Calculate the unknown. The result is $2,232.10. This is the required level payment amount when no payments are made in either July or August
- If you want to see a detailed amortization schedule showing how the monthly payment is allocated between principal and interest click on the "Amortization" tab above the input area or press [F4]. Notice that while no payment is due in for either July or August, interest still accrues
Below schedule with level payment showing two monthly skipped payments and interest accruing.
Back to the online Time Value of Money Calculator.