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!
ERRATA.... I think I see what you mean by a "two-step loan" and changing the proportions of principal and interest per payment, as well as the issue with multiple formulas vs a single formula.
And to that end, you can consider my previous response as a "solution" that avoids all that.
In my previous response, I arbitrarily set the "new loan" payment to be the original payment plus the additional payment.
There is nothing wrong with that. The payment can be any arbitrary that the borrower wants.
But in contrast, I suspect that you calculated the "new loan" payment by something like the following, based on the design of my "new loan" worksheet:
=ROUNDUP(PMT(F7/12,F8,-F6), 2)
where the formula in F8 is =B12-B5.
That results in a regular payment of $18,299.04, with a final payment of $18,206.92.
But the value in B12 is based on an NPER calculation that assumes a regular payment that is the same as the "arbitrary" payment that I used.
(Note the inconsistent assumptions!)
Presumably, that is the "multiple formulas" that you want to avoid.
In contrast, with the arbitrary regular payment of $18,361.71, which naturally follows from the input date in column B, namely =ROUND(B9+B11,2), the final payment is very different, namely $9154.01.
There is nothing wrong with that. It is a consequence of the borrower's choices.
