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#1
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Payment in Advance/Arrears
Hello,
I want to compare payments for a loan where the payment is calculated at the end of the month vs. at the beginning of the month. Excel Help says to change "type" from "0" to "1" to change from arrears calculation to advance payment. How does this happen? thanks |
#2
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Payment in Advance/Arrears
What is your formula, what are the values of the arguments, what is the result of the formula and what did you expect instead?
-- Kind regards, Niek Otten "Sandy Schmid" wrote in message ... | Hello, | | I want to compare payments for a loan where the payment is calculated at the | end of the month vs. at the beginning of the month. Excel Help says to | change "type" from "0" to "1" to change from arrears calculation to advance | payment. How does this happen? | thanks |
#3
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Payment in Advance/Arrears
"Sandy Schmid" wrote:
I want to compare payments for a loan where the payment is calculated at the end of the month vs. at the beginning of the month. Excel Help says to change "type" from "0" to "1" to change from arrears calculation to advance payment. Did you mean "beginning and end of the period", not "beginning and end of the month"? The latter sounds like "calendar month". If you did indeed mean that, what would you call a payment due on the 15th of a month? (Rhetorical.) Normally, payments begin one month after the initial loan. Interest is computed based on the balance at the beginning of the period, before payment. That is payment "in arrears" -- end of the period. It does not matter whether the period ends on the 1st, 15th or last day of a calendar month. Rarely, the first payment is due when the initial loan is distributed. Subsequent payments begin one month later. Interest is computed the same way; but there is no interest for the first payment, since no time elapsed. That is payment "in advance" -- beginning of the period. (There is a third case where payments are due on some date, the first of which is less than a month after the initial loan. That is payment "in arrears", but the first payment is for a shorter "odd" period, and interest is prorated for the shorter period. For US mortgages, normally the "odd" period is handled by including the interest for the short period in the closing costs.) You can see the effect of these 2 payment schedules as follows: 1. =pmt(1%,12,-12000): $1,066.19 (in arrears) 2. =pmt(1%,12,-12000,,1): $1,055.63 (in advance) 3. =pmt(1%,11,-(12000-1055.63)): $1,055.63 (in arrears) Note that the payment amount in advance (#2) is the same as the payment amount in arrears (#3) for one less period and an initial balance reduced by the payment amount. |
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