Longer-term loans and negative amortization
In the last exercise, even though the interest rate kept rising, the payment was still high enough to avoid negative amortization. In this exercise, we will see a case where there is negative amortization.
This will be accomplished by changing the payment frequency from monthly to annually. Another method would have been to increase the interest rate at a more rapid pace, but the increases would have needed to be over 5% per period!
Re-enter the PMT()
formula and annual interest and principal payments, and watch to see when negative amortization happens!
This exercise is part of the course
Loan Amortization in Google Sheets
Exercise instructions
- Add the annual
PMT()
formula in columnG
, using the annual interest rate inB4
and the amortization periods inB8
. - Fill in the annual interest charges in column
I
, using the annual interest rate in columnH
. - Calculate the portion of the payment applied to principal in column
J
.
Hands-on interactive exercise
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