Calculator Power-less - Posted by blaureiro

Posted by blaureiro on January 28, 2003 at 21:51:03:

Thanks for clearing that up for me.

Calculator Power-less - Posted by blaureiro

Posted by blaureiro on January 28, 2003 at 11:04:46:

How do you determine new present value of a note that has received a prepaid principal reduction payment.

Example: $80,000 original pv
@ 6.5%
$685.94 monthly payment
Amortized for 15 years
with a balloon in 5 years

Now let’s say the buyer made a $15,000 prinipal payment 3 months into the loan. (This is only an example and not intended as an advertisement of a note.) How do you determine present value?

Power-Ade! - Posted by David Butler

Posted by David Butler on January 28, 2003 at 12:27:22:

Hello blaureiro,

In the case you illustrate here, you would simply deduct the $15,000 from the remaining balance due on the loan at that time. Your new balance is the present value of the note, at its face rate, at all times during the term of the note. What changes is the remaining term, which grows shorter anytime payments are accelerated!

Let’s quickly review your Subject note here…

PRESENT VALUE = PV = 80000
INTEREST/YIELD = I/Y = 6.5
PAYMENT = PMT = 685.94
then solve for Term according to your calculator’s operating instructions
TERM = N = 184 months, plus a final (185th) payment of $748.52

So, this note is slightly more than 15 years (180 months) to fully amortize. Now, what is the remaining balance on this note after 3 payments have been made on time…

TERM = N = 182
INTEREST/YIELD = I/Y = 6.5
PAYMENT = PMT = 685.94
then solve for Present Value according to your calculator’s operating instructions
PRESENT VALUE = PV = 79281.50

So… assuming that your Payor then came in on the same day and also paid down $15,000 more dollars on this loan, the new present value would be $79,281.50 less $15,000 = $64,281.50. If he pays it is a day after, that PV amount would increase by one day’s interest, if he paid the $15,000 two days after the third monthly payment, that PV amount would increase by two day’s interest, and so forth.

Long as we are here, what is the remaining term of the loan at this point, not considering the balloon payment “stop-date”??

PRESENT VALUE = PV = 64,281.5
INTEREST/YIELD = I/Y =
PAYMENT = PMT = 685.94
then solve for Term according to your calculator’s operating instructions
TERM = N = 130 + final payment of $859.43 (131 total)

On your original note terms, after 59 payments,the remaining balance would be $62,553.46. The balloon payment due on the 60th month would then be $62,553.46, plus one month’s interest accruing from the time the last payment (59) was made, or $338.83, for a total PV at balloon payoff of $62,892.29

With the new payment schedule created by paying down $15,000 additional principal at the time of the third payment, after 56 more payments, the remaining balance (PV) of this note would be $42,301.08, plus $229.13 interest accruing until payment at the 57th month, or a total balloon payment (PV) of $42,530.21

Hope that helps…

David P. Butler