Just wondering what parameters are standards in lending and loan calculation.
Is one year classed as 12 months or 52 weeks or 365 days, or is there an allowance for leap years by using 365 1/4 days.
Simple interest or compound interest ?
Using the PMT function in excel , the [type] argument can have the value 0 or 1, meaning:
0 - the payment is made at the end of the period;
1 - the payment is made at the beginning of the period.
Which of these is most commonly used ?
In Florida, for closing purposes and whenever you need to split up a year, interest and payments are calculated by 365 days. When loans are created they are written out as yearly percentage which is then presented as a monthly payments. The yearly interest, term, and payments are spelled out on the promissory note or purchase money note.
Payments are made at the end of the period. In arrears.
Simple interest or compound interest depends on the loan type. We have fully amortized, interest only, and negative amortization loans here.
A Google or Youtube search will yield several examples of creating and Amortization Schedule with MS Excel.
360 days. There are a multitude of online amortization programs.
Mortgage interest is calculated on a bond year of 360 days unless otherwise explicitly stated in the instrument. Not a common alternative in residential transactions. Interest is earned in arrears which means the payment is due at the end of the period. You only pay for the money as you use it. (read as: still outstanding)
A 30 year mortgage is 360 periods of 30 days each.