 # Stupid question..can someone please tell me?? - Posted by Ann

Posted by Ann on February 09, 2000 at 15:59:12:

Thanks to both of you for your answers. They were greatly appreciated.
Ann

Stupid question…can someone please tell me?? - Posted by Ann

Posted by Ann on February 09, 2000 at 12:45:53:

This question may be stupid but I have always wondered about this. If someone borrows \$10,400 and the interest is 12.75%, or \$1326, is this \$1326 a TOTAL interest for the length of the loan or an interest for each year?
In other words, if the length of the loan were 5 years, would the payments be \$10,400 plus \$1326 divided by 60 payments for \$195.43 a month… or (5 yrs X \$1326 interest a year plus \$10,400 divided by 60) for \$283.83 a month?
I just can’t seem to get this through my head. Thanks a lot.
Ann

Re: Stupid question…can someone please tell me?? - Posted by Dave T

Posted by Dave T on February 09, 2000 at 13:23:07:

Q. If someone borrows \$10,400 and the interest is 12.75%, or \$1326, is this \$1326 a TOTAL interest for the length of the loan or an interest for each year?

A. Loan interest is stated as an Annual Percentage Rate. In your example, if this were an interest only loan, then \$1326 interest would be charged each year the money is borrowed.

Q. In other words, if the length of the loan were 5 years, would the payments be \$10,400 plus \$1326 divided by 60 payments for \$195.43 a month… or (5 yrs X \$1326 interest a year plus \$10,400 divided by 60) for \$283.83 a month?

A. Monthly payment would be \$235.30. The formula for computing the monthly payment is a little more complicated than the approach you followed. Each month a portion of the payment is applied to the principal balance. The interest each month is computed on the remaining principal balance – not the full amount of the loan. Since the remaining loan balance keeps falling each month, the interest portion of the monthly payment declines as well. The total interest paid on this note in your example will be \$3718 – a lot less than 5 times \$1326.

Re: Stupid question…can someone please tell me?? - Posted by JoeB(Atlanta)

Posted by JoeB(Atlanta) on February 09, 2000 at 13:00:42:

Hi Ann, short answer:the quoted interest rate is an annual rate, for each year (or portion) that you have the loan. So in your example there would be \$1326 x 5 years of total interest over the life of the loan.

Longer answer: to determine the payment you would need to know whether the payments are ‘interest-only’ (as they are on many hard money loans and private lender investment loans) or regular ‘principal + interest’ payments. If interest-only, then you’d just divide the \$1326 annual interest by 12, to get your monthly payment, BUT you’d owe the entire \$10,400 principal at the end/balloon on the loan.

Hope this helps,
Joe Brillante