If you have a loan or mortgage, probably you have ever think about paying more money on top of your monthly payment to lower the amount of the total interest paid, as well as shorten the payment period over the life of the loan. And usually you think about this after you gain some profit in your investment, your salary is raised, or probably you won some lotteries …:-).
In loan terms, it is called extra payment. Instead of thinking about making additional payment, you can use this calculator to calculate the impact of your extra payment to your existing loan or mortgage. You can also plan to make extra payment regularly whether paying it monthly, quarterly, semi-annually or annually.
The result will give you a rough calculation about how much your interest can be saved on how long your loan period can be shortened. I state this calculation is rough because usually there are additional calculation or penalties applied to your extra payments based on your initial loan aggreement.
When somebody from financial institution come to you and offer some investment opportunities, usually they will hand you the table of the value of your money after some period of time. This table is usually calculated from present or future value calculation. Where your current money will be treated as a present value parameter.
And from the term written in wiki, present value itself is the value on a given date of a future payment, discounted to reflect the time value of money and other factors such as investment risk. As you can find in some investment opportunities offering, present value calculations are widely used in business and economics to provide a means to compare cash flows at different times on a meaningful “like to like” basis.
This present value or pv calculator consist of three worksheets. The first worksheet is used to calculate present value based on interest rate, period and yearly payment. Say, that somebody offering you an investment where you have to invest USD 10,000 for 4 years and they will pay you USD 3500 per year. So, you have to compare whether it is worth to invest on it or just put it in a bank with 12% interest rate. The calculation show that the present value of your money is higher than your current money. So, the investment is profitable for you because it give interest more than your bank.
If you are not a finance people or don’t know much about finance but want to know how the banks calculate your savings or loans amounts, you should understand compound interest first.
Compound interest is an interest that arises when interest is added to the principal everytime the interest is due, so the total amount will be calculated together to earn next interest. The addition of interest to the principal to get another interest is called compounding. You will see that some banks put advertisement about daily interest rate, weekly interest rate which mean your savings amount will grow based on that interest period. For example, a saving with $100 initial principal and 1% interest per month would have a balance of $101 at the end of the first month, $102.01 at the end of the second month, and so on.