Example 14 - Interest Only 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", 5 year loan with first year's payments paying only the accrued interest.
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 initial interest only payments, follow these steps:
- Click the [New] button to clear any previous entries.
- Set "Rounding" to "Ignore" by clicking on the "Rounding" button.
- Set "Compounding" to "Monthly"
- Enter 5.625% for the "Nominal Annual Rate".
- Create a "Loan" event in row one of the cash flow input area.
- Set the "Date" to November 1, 2012 (mm/dd/yyyy)
- Set the "Amount" to $94,000.00
- 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 December 1, 2012
- Set the "Amount" to "Unknown"
- Set the "# Periods" to 12.
- Display the "Special Series Window" by clicking in the second row's right most column under "Special Series...".
- Select the "Interest Only" tab at the top of the window.
- Be sure "Activate Interest Only series for the currently highlighted event" is checked.
- Click [OK]. Notice that the "Amount" column will now say "Interest Only".
The "Special Series" window will look like this.
- Move to the third row of the cash flow input area. Select "Payment" for the "Event" type. Initially, the regular payment amount is unknown.
- Set the "Date" to December 1, 2013
- Set the "Amount" to "Unknown"
- Set the "# Periods" to 48.
Your screen will look like this:
- Calculate the unknown. The result is $2,191.47
- If you want to see a detailed amortization schedule showing the monthly payment allocated between principal and interest click on the "Schedule" tab above the input area.
Back to the online Time Value of Money Calculator.