Posted by John Behle on January 26, 1999 at 16:42:12:
You ought to always offer simple interest. You might get it. It can make a difference of many thousands of dollars in the long run. Seldom in negotiating real estate can a word make as big a difference.
If you are a seller, of course you want compound interest. The shorter the compounding period the better. For example, let’s take a $10,000 (lump sum) private second. The first line shows simple interest. The second line shows annual compounding (the assumed period unless specified otherwise) and the third line shows daily compounding (based on a 360 day year).
FV…PV…%I…N…PMT
15,000…10,000…10…5…0
16,453…10,000…10…60…0
16,486…10,000…10…1800…0
You can see the difference of $1400 dollars (on only a 10k loan) in just including the word “simple” in your offer.
but until then… In setting up a no money down deal when would you ever offer the seller, the agent or anyone compounded interest and when would you offer them simple interest on the borrowed amount???