I’m trying to get my grandson interested in investing as the back story.
Got a check for $484.94; mortgage company redid the escrow based on a property tax change (I’m older with a slight break) so I got some back.
Deposited the money against the principle. I’ve got nine years and nine months to pay and the interest rate is 3.74% APR.
I told him it’s about $400 off the principle that I’m paying the ~4% on so seat of pants calculation was I’d save $16.00 bucks a year for 10 years - princely sum of $160.00 over that time. We agreed that finding a $16 dollar bill in the street was worth bending over to pick up.
What’s the exact method of finding out the savings / year / mortgage lifetime? Got to be an Excel formula for that, right?
First of all, don’t use APR since it includes all of your fees. Use the nominal interest rate r.
The formula is FV = PV(1+r/n)[sup]nt[/sup]. For a monthly mortgage your n=12, t is 9.75. Let’s say the interest rate is 3.5% then FV = 484.94(1+0.035/12)[sup]12x9.75[/sup] or $681.83
Surely it would be better to carry on paying the same monthly and end up paying less interest overall? I don’t have the maths to work it out, but my instinct says that it should be.
Saint Cad already nailed the formula, so all I can add is that it’s “principal” not “principle”, although you are teaching your grandson about the principles of financial math.