A financial calculator is an online interactive toolkit that
can perform variety of specific finance calculations. The main objective behind
a financial calculator is that you can use it for long term calculations of
your budget or your home loan or car loan.
Prior to using a calculator for complex financial equations,
you can simply input your financial variables into a program that is designed particularly
to evaluate this data.
By means of catering to your specific need, it is far better
than a normal calculator. Similar to your own personal budget, you can
calculate and manage things. Each day, the possibilities of financial
calculator are growing.
It's up to you to find out whether or not your finances are difficult
enough to require a financial calculator. A financial calculator is probably
for you, if you don't know how much you are earning each week versus the amount
you are paying in bills.
All loans are based on a mathematical formula that
determines how much you are going to pay. There are five crucial loan variables
including: term, interest rate, principal, final value and payment. These are
also the five most important terms you need to know before you apply for any
loan.
All of them are interconnected and changing any one of them
is likely to change the others, though oftentimes not quite as you would
predict. There are some rules of thumb about that, but better not rely on them
too much. Before you even start thinking about any specific real estate loan
you should spend some time learning the variables with a financial calculator.
Term: it is the period used to calculate the loan payment,
often the same as the maturity, ie. the time when the last installment is due.
Keep in mind though, that in cases the loan maturity is much shorter than the
loans term (for example: balloon mortgages).
The standard term for a real
estate mortgage is 30 years, though in case of amortized loans you can choose a
period from 10 to 40 years. Generally
the longer the term, the lower the monthly installment, though the change is
much smaller than you might expect.
Interest rate: is the amount of money charged by the loan
creditor for lending you the money. It is usually a percentage of the sum you
borrow. The rate is charged every payment term, but it is customarily quoted on
an annual basis. A 6% interest rate is customarily, 12 multiplied by 0.5% (in
case of monthly payments). The lower interest rate, the less you have to pay.
The effect is greater in case of long-term loans.
Principal: this term can mean either (1) the portion of the
installment that is used to reduce the balance or (2) the total amount of money
being financed. Generally, the principal (1) should be higher than the interest
rate, otherwise you will suffer from negative amortization (your debt will grow
even though you pay the installment). The higher the principal (1) is the less
is the final value.
Final value: this is the total sum you pay for the loan (all
installments plus all additional fees). The final value at the end of the
mortgage should usually be zero, meaning that the debt has been paid in full.
Keep in mind that the lower final value you want to get, the higher
installments you will have to pay.
Payment: your monthly (rarely quarterly) amount due. This
important variable determines whether you can ultimately afford a loan or not.
A word of warning: while it is relatively easy to run the
formula on a financial calculator, it is very difficult to do that on paper,
even if you were good at Math in the college.
An online financial calculator is much faster and doesn't
make mistakes.
Remember, when you choose a real estate loan for yourself,
you have to know all five variables - only then will you be able to determine
what you can actually purchase.
Oftentimes it is actually better to go for
higher monthly payment if it means lower final value. On the other hand, you
might want to stretch your loan (longer term and higher final value) to get
more money for a low installment... The number of possibilities are immense,
but you have to know what they really are if you are going to profit from them.
Given below are the some of the problems that is solved by
means of a financial calculator:
- Calculate a monthly lease payment for a car
- Determine loan pay-off amount
- Assess a consolidation loan to pay off debt
- Use the refinancing calculator to see if
refinancing makes sense
- Compute monthly payments and final payment
for balloon mortgage
- Calculate a loan; calculate a biweekly
mortgage; determine housing affordability
- Understand your personal safety debt ratio
- Determine the value of a bond; determine the
annual yield for a bond if held to maturity
- Establish book and liquidity values
- Quickly determine liquidity and activity
ratios
- Calculate debt and profitability ratios
- Determine the present value of a single
amount, a mixed stream of cash flows or of an annuity
- Understand the future value of a single
amount or an annuity
- Calculate the net present value of an
investment with up to 15 years of cash flow; calculate the annualized net
present value
- Compute the annual rate of return needed to
meet a financial goal
- Determine the real rate of return and the
after tax return; ascertain taxable equivalent rate
Related Articles:
|
