Forum Discussion
I need a formula to calculate a loan payment with additional principle added to accelerate payoff...
Douglas997t wrote: ``The additional payment made each month is to be applied directly to principle as opposed to as a prepayment applied to both principle & interest.``
Ostensibly, the Excel formula is: =NPER(D66/12, D68 + D69, -D64)
But that results in 200.466253023484, which rounds to 200.47, not 200.48.
And IMHO, NPER should be rounded up because humans cannot count non-integer periods.
So the formula should be: =ROUNDUP(NPER(D66/12, D68 + D69, -D64), 0)
Mathematically, the amount of periodic interest is always prevBal*intRate. It is not affected by the amount of the payment.
So, any additional payment does indeed reduce only principal.
However, as principal is reduced periodically, so is the amount of interest each period.
This is demonstrated below. See the attached Excel file for formulas.
JoeUser2004 Hello @Joe User. I hope all is well this 4th of July weekend. You and I had discussed a similar scenario to this one a while back and the dynamic has changed a bit leaving me struggling to find a way to accomplish the enhanced need. I would greatly appreciate your help if you have some time.
I am including an excel document with a short narrative to explain what I am trying to accomplish. Let me know if you have a solution or commentary.
Narrative...
What you see here is the long hand sample of what I need to accomplish in a single cell formula whereby the cells you see formatted in light blue are variable entry cells and unformatted/white cells contain formulas that interact with the colored cells data.
The table is conditionally formatted (Red with black top/bottom outline) to highlight the row that represents the target field to begin the application of additional principal payments from that point forward until the loan is paid off.
The re-amortization of the balance as it is affected by the additional principal payments must happen in this manner as opposed to simply making this a two step loan (as has been suggested) whereby at the point where the additional payments begin we simply begin an entirely new loan. This won't work.
The reasoning: The original amortization schedule in the included example is in month 170 at the time of the initiation of the additional principal payments. The proportion of Principal/Interest must be maintained to give an accurate portrayal of the revised early payoff date. If we began a new loan at this stage, the distribution of Principal/Interest would be skewed due the front end loading of the interest in an amortization schedule and would throw off the revised payoff point to be illustrated.
The solution would need to be a single cell formula based on the criteria reflected in B4:B13 and interfacing relating to today's date as the conversion point for the additional principal payments being added. If this cannot be accomplished without moving to some form of heavier programming, maybe a helper cell would be helpful and this would be ok as a last resort.
Thanks Joe!
(Updated Excel attachment 7/4/2023 11:40 AM PT.)
ERRATA.... Sorry for the incessant responses, but I just noticed another error in your original Excel file.
Also, I should note that in the "new loan" worksheet, the formulas starting with payment #170 are a hack -- the minimum changes to incorporate the new loan terms in F4:F13. They are not robust enough to allow the starting payment to be anything other than #170.
As for your errors, refer to the image below.
Note that the "scheduled payment" in D295 covers only the remaining principal in B295. It does not include the interest in E295. It should.
And also note that the full "additional principal" payment in G295 is unnecessary.
IMHO, the correct last "scheduled payment" in D295 should cover all of the remaining principal plus interest, even if that might exceed the regular payment in B9.
Thus, there should not be any "additional principal" payment in G295.
That is implemented by changes in the formulas starting in D17, F17 and G17. Note that some of the changes are subtle.
The corrected image is below. See the attached Excel file for details.
Corresponding changes are implemented in the formulas starting in C186, D186, F186 and G186 in the "new loan" worksheet.
- Hi Joe. Thanks for your guidance on this. I see what you are saying and will implement your changes! Your help is very much appreciated!