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Join us | Login for Financial Advisors | SMS us at +65 – 9782 - 8606Home Loan | Commercial Loan | Refinance Loan | *Financial Planning | *Insurance
Home Loans With Different Rests: Creating Their Amortization Schedule
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Explaining About The Set-up Of The Amortization Schedule For
Mortgages With Different Rests
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Rest (the compounding period)
It is the frequency in which the outstanding loan amount is calculated
The more frequently the loan is calculated the lower the interest payments will be, all else being equal.
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Each time repayment is made the outstanding loan amount is reduced and so will the interest chargeable if the loan is re-calculated.
If a loan on an annual-rest basis is repaid monthly the interest for the entire year will still remain the same the financier uses the outstanding loan at the beginning of the year for interest computation.
Because
Because
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Most Singapore home loans follow a monthly rest, while a few is on daily-
and annual-rest basis.
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Example
Using the below loan details, we will proceed to create the amortization schedule for daily-, monthly- and annual-reducing loans.
Loan Quantum = S$1 millionLoan Tenure = 20 years
Interest Rate = 10% p.a. The Excel template workbook with pre-set formulas used throughout
this article can be downloaded here.
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Daily-rest loan with monthly installment
There are two main advantages of a mortgage that are calculated daily.
Firstly the total interest payable will be relatively lower.
Secondly, if partial repayment is made, the interest that will be charged is reduced by the next day since the outstanding principle is calculated everyday.
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How do we create the amortization schedule?
With the aforementioned loan, we need to find the number of compounding periods for the entire loan duration as well as the
daily interest rate
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For simplicity, we assume that every year in the loan has 365 days.
Total Periods = 365 x 20 = 7,300
Next, we calculate the daily interest rate.
Daily Interest Rate = 10% / 365 days = 0.0274% (approximately)
In the Excel sheet, we enter these loan details.
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After entering the loan details, the payment, principal, interest and balance, the first period will appear in the Excel sheet with the pre-entered formulas, as seen in the next figure.
Select D12:G12 then drag and pull to the 7,300th period
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However, the repayments are monthly so we need to find the total amount for 30 days
(We assume here that there are 30 days in each month).
Using the pre-set formula in the Excel sheet and dragging it
down, we get the next result:
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Monthly-rest with monthly installment
Similar to the daily-reducing loan, we find the total periods and monthly interest, which are
Total Periods = 12 x 20 = 240
Monthly Interest = 10%/ 12 months = 0.083% (approximately)In the Excel sheet, we get as next:
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Repeat the steps for the daily-rest loan to obtain the amortization schedule and you will obtain something like the next:
Repeat the steps for the daily-rest loan to obtain the amortization schedule
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Annual-rest with monthly installment
Finally we have the annual-reducing loan.
Since the frequency of loan calculation is the same as the loan quantum. We have
Total Periods = 20
The annual interest rate is also already given. Hence we have the following:
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The amortization schedule will be like the next:
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But repayment is made monthly. So we must divide all the yearly figures by 12.
For example in the first year:
Total Monthly Payment ($) = 117,459.62 / 12 = 9,788.30 Total Monthly Principal ($) = 17,459.62 / 12 = 1,454.97 Total Monthly Interest ($) = 100,000.00 / 12 = 8,333.33
In the Excel sheet, it will be like this:
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Conclusion
For simplicity's sake, throughout this section, we assume that each month has 30 days and so for the monthly outlay for the daily-reducing loan, we simply sum up the figures for 30 days.
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Now, we compare the monthly payment, principal and interest across the three types of rests.
We only use the first month's amortization schedule.
From Table 1, we see that the total payment and interest is the least for the daily-reducing loan.
Example
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Table 1: Comparison of Amorisation Schedule for the 1st Month
Monthly Payment ($)
Monthly Principal ($)
Monthly Interest ($)
9,506.0 1,292.0 8,214.1 Daily Rest
9,650.2 1,316.9 8,333.3 Monthly Rest
9,788.3 1,455.0 8,333.3 Annual Rest
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In Table 2, we clearly see the difference in interest payment for the first year.
As expected the interest is always lower for the daily-rest loan, followed by monthly, and finally annual.
Table 2: Comparison of Monthly Interest Payment ($) for the 1st Year
Annual Rest Monthly Rest Daily Rest8,333.3 8,333.3 8,214.1 1st Month8,333.3 8,322.4 8,203.4 2nd Month8,333.3 8,311.3 8,192.6 3rd Month8,333.3 8,300.1 8,181.8 4th Month8,333.3 8,288.9 8,170.9 5th Month8,333.3 8,277.5 8,159.9 6th Month8,333.3 8,266.1 8,148.8 7th Month8,333.3 8,254.6 8,137.6 8th Month8,333.3 8,242.9 8,126.3 9th Month8,333.3 8,231.2 8,114.9 10th Month8,333.3 8,219.4 8,103.4 11th Month8,333.3 8,207.5 8,091.8 12th Month
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If that isn't enough, we note that the total interest payable for the entire loan duration is lowest for the daily-rest loan.
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Table 3: Comparison of Total Interest Payments
Total Interest ($)
1,313,134.5 Daily Rest
1,316,051.9 Monthly Rest
1,349,192.5 Annual Rest
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With the daily-rest, you can reap interest-saving of $(1,316,051.9 – 1,313,134.5) = $2,917.40 as compared to the
monthly-rest.
When comparing the monthly-rest with the annual-rest
The interest-saving is even greater at $(1,349,192.5 – 1,316,051.9) = $3,3140.6.
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About Property Buyer Mortgage Consultants
Property Buyer Mortgage Consultants is a research focused independent mortgage broker. We emphasize a consultative approach where we match our client’s financial situation with the best fit mortgage loan, not simply a cheap loan.
We also help property buyers in their buying process helping them avoid pitfalls from unscrupulous property agents. (We are not property agents, therefore there is no conflict of interests.)
We also developed our proprietary home loan reporting tool which provides amongst other things, 23 years Sibor history as well as 6 years worth of SOR.
Our service is free to you as banks pay us a commission on loan deals completed. Banks in turn save on staffing cost as we are not on their payroll. www.PropertyBuyer.com.sg/mortgagewww.SingaporeHomeLoan.netwww.iCompareLoan.com/consultant/