Loading...

Lecture: Loan Amortization Part Two

Course video 29 of 58

The ability to use debt and credit to finance purchases has its advantages and disadvantages. Understanding topics related to loan repayment and how your borrowing and credit use behavior may impact your credit report is critical for being able to have access to debt and credit use in the future.

Financial Planning for Young Adults (FPYA), developed in partnership with the CFP Board, is designed to provide an introduction to basic financial planning concepts for young adults. The FPYA course is organized across eight separate modules within a 4-week window. Topics covered include financial goal setting, saving and investing, budgeting, financial risk, borrowing and credit. Because financial planning is such a personal topic, you will be encouraged to define your own financial goals and objectives while we discuss concepts and provide tools which can be applied in helping you reach those goals. Within each module, you will view a combination of traditional lecture style videos along with video vignettes that introduce financial topics for discussion among participants. The video vignettes provide a unique and exciting component to this course. Each vignette introduces a real-world scenario where financial decisions must be made and financial planning concepts can be applied. You will be challenged to think critically about each scenario and decide how you might come to a resolution if ever faced with a similar situation. Finally, the course also includes material throughout which is focused on career opportunities in financial planning, including video interviews with actual CFP® professionals and other professionals working in this exciting and growing career area. The final module in the class is devoted to the topic of financial planning as a career.

查看授课大纲

您将学习的技能

Risk Management, Budget, Saving, Investment

教学方

Nicholas Paulson
Associate Professor
Kathryn L. Sweedler
Consumer Economics Educator
Charles R. Chaffin
Director of Academic Programs and Initiatives

脚本

[MUSIC]

In part two of this lecture segment,

we're going to jump into the topic of loan amortization and

all loan amortization refers to is the schedule of payments that the borrower is

agreeing to make to the lender to pay off that principle balance that they borrowed.

So, loan amortization scheduling is just going to do layout,

exactly when payments are due so

that the borrower's going to pay that loan off over the agreed upon term.

We're going to focus on fixed interest rates loans just because they have

a very simple, or relatively simple amortization schedule.

In a fixed interest rate loan the interest rate does not change.

And we can find a payment level that's going to remain constant or

fixed over the entire term length of the loan.

So based on the term length, the interest rate and

then how many payments are being made per year or the payment frequency on that loan

given any certain amount that we might borrow we can figure out what that regular

payment's going to be so that we pay off that loan over exactly the time period.

That's defined by the term of the loan.

So here we can see the formula that's used to determine the payment size for

any given loan amortization schedule.

So some of the basic terms that we discussed in the previous section

are going to go into this formula.

So the amount that we borrow or

the initial principal balance the interest rate that's being charged on the loan on

an annual basis, the term length of the loan, so again,

the number of years over which we're going to be paying this loan back.

And then finally, the payment frequency.

So how many payments per year are we going to make?

In terms of relating those to the different variables that go into

the formula that you see on the screen here P is what we're finding.

And that refers to the payment that's going to be made by the borrower

during each payment period.

Again, that can be on a monthly basis, an annual basis.

That's defined by the payment frequency that's outlined in the loan contract.

And then the values that you see within the formula itself that determine

that payment V0 represents the initial principle balance,

that's the amount that was originally borrowed, we have the annual interest rate

of r, that is being charged on the loan, we have t, which defines the term length

of the loan in years and then finally m, also enters in this formula, and that

simply represents the number of payments that are going to be made during the year.

On an annual payment frequency loan, m would be equal to one.

On a monthly payment frequency loan, we would enter a value of 12 for m.

You can see here that we take that annual interest rate and

divide that by the number of payment periods throughout the year.

What that gives us is the interest rate that's being charge per payment period.

So for example if we're being charged 6% on annual basis or being charged roughly

one half of a percentage point per month when we make those monthly loan payments.

If we multiply the length of time we're paying the loan back in years t times m or

the number payment periods per year T times

M gives us the total number of payments that will be made.

So again just as an example if we're talking about a 30 year

home mortgage loan where we're making monthly payments, T would be equal to 30,

M would be equal to 12, and the borrower would be agreeing to make a total of

360 payments if they're paying that agreed upon minimum to pay the loan off or

pay that balance down to exactly zero over that 30 year period.

Now, to just put some numbers into that formula to see what an example looks like.

Let's assume that we're talking about a mortgage loan

where we're borrowing $100,000.

So, our value of V0 or our initial principal balance is 100,000.

Let's look at a 6% annual interest rate, a term rate of 30 years.

And a monthly payment frequency.

If we enter these values into that loan amortization formula that we

saw on the previous screen what that gives us is a monthly

loan payment of $599.59 per month.

What that tells us is that every month over the next 30 years or

for the next 360 months The borrower will be required

to pay a minimum of $599.55 back to the lender.

If we make all $360 of those $599.55 payments, we'll pay off the loan balance,

bring that loan balance down to 0 over that 30-year time frame.

Here you can see what the loan amortization schedule looks like

over the first year of this loan contract.

Again, we're going to start with an initial loan balance of $100,000 in month

1, we'll make our first loan payment of

$599.55 $500 of that or one half of percentage point on

the $100,000 that we owe is going to be an interest payment.

The remaining $99.55 is going to pay down our principle.

That brings our principle

balance down to $99,900.45 after that first month's loan payment.

As we progress throughout the year,

we can see that our loan payment remains the same.

The amount of interest that we're being charged is declining because our

principle balance is coming down as we make those loan payments and

the portion that's going to payoff that principle continually

increases throughout the payment schedule, throughout the life of this loan.

If we move and take a look at the last year of what the amortization schedule

would look like for this loans.

So the final 12 payments in this 360 payments series.

We can see by the 360th payment for still paying the $599.55 monthly payment.

But that very last payment includes $2.98 worth of interest.

And $596.57 worth of principle.

[MUSIC]

>> [NOISE]

关于 Coursera

课程、专项课程和在线学位均由全世界一流大学和教育机构的顶尖授课教师教授。

Join a community of 40 million learners from around the world

Earn a skill-based course certificate to apply your knowledge

Gain confidence in your skills and further your career

Coursera 致力于普及全世界最好的教育，它与全球一流大学和机构合作提供在线课程。

© 2019 Coursera Inc. 保留所有权利。

通过 App Store 下载

通过 Google Play 获取