johnfleet
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Post by johnfleet on Oct 15, 2015 11:55:45 GMT
Hi All
a question for the financial gurus out there! Is there any simple way to compare the potential return on an amortising loan with fixed interest borrowing. Specifically I'm heavily into SS - for lots of reasons not least its simplicity. Each month you get 1 per cent of your capital, but of course it's locked away for the loan term (and in practice for many of their loans for rather longer as we know). I'm trying to compare this against an opportunity to invest £2500 at 18 per cent with a business known to many ReBS investors. Again a two year term. I would earn £495.42 interest over the two years with the latter versus £600 with SS. But of course with the amortising loan I would have a large chunk of capital repayment each month to reinvest unlike SS when I only get the interest to reinvest. And the risk with an amortising loan diminishes with time (if the capital isn't reinvested that is).
I imagine that somewhere, someone has a fancy s/s which allows a comparison between returns assuming that all monies earned/returned each month for the balance of the 24 month term, but so far I've not been able to find one!
Thanks in advance!
John
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jimbob
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Post by jimbob on Oct 15, 2015 12:23:14 GMT
www.amortization-calc.com/You'll get repaid £124.81 per month on the amortising loan; and £25 on the Savingstream investment. Of course at the end of 2 years assuming no reinvestment in either your £2,500 capital will still be sitting there with SS and all your capital will be returned with the REBS loan.
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SteveT
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Post by SteveT on Oct 15, 2015 12:25:28 GMT
Hi All a question for the financial gurus out there! Is there any simple way to compare the potential return on an amortising loan with fixed interest borrowing. Specifically I'm heavily into SS - for lots of reasons not least its simplicity. Each month you get 1 per cent of your capital, but of course it's locked away for the loan term (and in practice for many of their loans for rather longer as we know). I'm trying to compare this against an opportunity to invest £2500 at 18 per cent with a business known to many ReBS investors. Again a two year term. I would earn £495.42 interest over the two years with the latter versus £600 with SS. But of course with the amortising loan I would have a large chunk of capital repayment each month to reinvest unlike SS when I only get the interest to reinvest. And the risk with an amortising loan diminishes with time (if the capital isn't reinvested that is). I imagine that somewhere, someone has a fancy s/s which allows a comparison between returns assuming that all monies earned/returned each month for the balance of the 24 month term, but so far I've not been able to find one! Thanks in advance! John Suggest stick the cashflows into Excel's XIRR function and look at the comparable rates of return. See support.office.com/en-us/article/XIRR-function-de1242ec-6477-445b-b11b-a303ad9adc9d
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johnfleet
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Post by johnfleet on Oct 15, 2015 12:25:50 GMT
Jim
I agree with those figures but my question is - how can I compare the return on the assumption that all money funds are reinvested at the relevant interest rates for the balance of the term, i.e interest is compounded each month - that's were it become too complicated for me!
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jimbob
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Post by jimbob on Oct 15, 2015 12:53:53 GMT
I've not double checked the maths, but I think if you invest the return of the 1st month into an 18% AER 23 month amortising loan; then the return of both that and the first loan into a 22 month 18% AER loan, and so on and so forth cascading then at the end of the process you'd have just under £981 profit, or a return of 18% AER  Reinvesting the Savingstream cash yields 12.68% AER as it is 1% a month, not 12% a year... (The calculation is somewhat simpler than the amortisation cascade though  (1.01^12) |
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Post by ablrateandy on Oct 15, 2015 13:43:46 GMT
Hi johnfleet , try this. Email me with any questions : Basically, enter the structure in B7, B8, B10, B11, B12, B13 There's a secondary function if you need more help. Hope this does what you need.... Attachment Deleted |
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Post by ablrateandy on Oct 15, 2015 13:46:59 GMT
Oh and obviously there is a dropdown to select Amortising or interest only and the BIG number is total of repayments on that structure. I do have more complicated sheets that can look at reinvestments etc if needed....
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Post by solicitorious on Oct 15, 2015 15:33:01 GMT
Hi johnfleet , try this. Email me with any questions : Basically, enter the structure in B7, B8, B10, B11, B12, B13 There's a secondary function if you need more help. Hope this does what you need.... Can you post again as xls for those with older versions? Everyone should try and do this when sharing stuff. Thanks anyhow.
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Post by ablrateandy on Oct 15, 2015 15:39:23 GMT
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Steerpike
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Post by Steerpike on Oct 15, 2015 15:40:03 GMT
Hi johnfleet , try this. Email me with any questions : Basically, enter the structure in B7, B8, B10, B11, B12, B13 There's a secondary function if you need more help. Hope this does what you need.... Can you post again as xls for those with older versions? Everyone should try and do this when sharing stuff. Thanks anyhow. Yes, EXCEL 2002 here, perhaps I should upgrade...
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Post by ablrateandy on Oct 15, 2015 17:31:12 GMT
That version should work for everyone I think?
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Steerpike
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Post by Steerpike on Oct 15, 2015 17:51:41 GMT
That version should work for everyone I think? Thanks Andy, that loads OK, will check workings.
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Post by ablrateandy on Oct 15, 2015 17:56:35 GMT
Cool. Just tag me with any questions. Also, some platforms may use different calculations to the ones that we use so I can't guarantee cross platform compatibility.
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adrianc
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Post by adrianc on Oct 15, 2015 18:42:40 GMT
Yes, EXCEL 2002 here, perhaps I should upgrade... May I take this opportunity to heartily recommend LibreOffice? At least as compatible with MS Office as other versions of MS Office, and infinitely cheaper.
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Steerpike
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Post by Steerpike on Oct 15, 2015 22:36:04 GMT
Yes, EXCEL 2002 here, perhaps I should upgrade... May I take this opportunity to heartily recommend LibreOffice? At least as compatible with MS Office as other versions of MS Office, and infinitely cheaper. Yes, thank you. I used OpenOffice and then LibreOffice for some years, and eventually installed a very old copy of MS Office. Over the years, I lost many formulae and much formatting and from time to time experienced grave performance issues when loading EXCEL workbooks in to LibreOffice and grew tired of update quirks and other irritations. Maybe I will go back but now is too soon.
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(1.01^12)
