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#1
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Why are cumulative interest payment calculations different?
I get very different answers when using
CUMIPMT(rate,nper,pv,start_period,end_period,type) and an equation I've seen others use to calculate cumulative interest paid (=(annual rate*present value)/12) * number of months held). Can someone explain why these equations produce different results? I need to ensure I'm using the correct calculation. |
#2
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If I understand your question...
The CUMIPMT function gives total interest paid on a loan over a given time period, let's say 12 months. In month 2 and forward, the balance on which the interest is calculated is now lower(after amortization), than the original amount, or pv. In the second formula you are using, the pv (I'm assuming you mean original balance or 1st balance) does not change, so this will give you total interest paid if there was no principal being paid (no amortization) on the loan. This amount will be significantly higher than the first formula. hth, Dave "New Soul" wrote: I get very different answers when using CUMIPMT(rate,nper,pv,start_period,end_period,type) and an equation I've seen others use to calculate cumulative interest paid (=(annual rate*present value)/12) * number of months held). Can someone explain why these equations produce different results? I need to ensure I'm using the correct calculation. |
#3
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Thanks Dave. That's just what I needed to know.
Greg "Dave Breitenbach" wrote: If I understand your question... The CUMIPMT function gives total interest paid on a loan over a given time period, let's say 12 months. In month 2 and forward, the balance on which the interest is calculated is now lower(after amortization), than the original amount, or pv. In the second formula you are using, the pv (I'm assuming you mean original balance or 1st balance) does not change, so this will give you total interest paid if there was no principal being paid (no amortization) on the loan. This amount will be significantly higher than the first formula. hth, Dave "New Soul" wrote: I get very different answers when using CUMIPMT(rate,nper,pv,start_period,end_period,type) and an equation I've seen others use to calculate cumulative interest paid (=(annual rate*present value)/12) * number of months held). Can someone explain why these equations produce different results? I need to ensure I'm using the correct calculation. |
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