At 05:05 PM 9/20/98 +0200, Ivan Sergio Borgonovo so eloquently stated:
>On 19 Sep 98, at 17:44, Rainmaker wrote:
>
>> >Sorry but what motgage is exactly?
>> >If it is:
>> >I have X $$$ in the bank, evry year they become X $$$ + 5%... how
>> >many $$$ I'll have after 10 years?
>> >The formula is
>
>-- snip --
>
>> If it were so easy. With a mortgage, the first half of the life
>> of the mortgage most money goes to interest. Hence they use a
>> different formula, i.e., Rule of 78's.
>
>My ignorance is on the economic side not on the math side... once
>I know what a mortgage is I'll write down the formula.
>
>For example what does it mean annual interest rate, if you've to pay
>monthly???
>Does it mean that if you want to end the mortgage in 1 year you'll
>have to pay debt+debt*percent?
>
>But I think this is not the right place to take some lesson on
>economics... :-)
The Sum of the Years Digits or the Rule of 78's adds the years
(SOYD) and/or months (Rule of 78) to determine the denominator.
It then takes 1/x, 2/x, 3/x etc. of the payment and applies it
against principal, which is why interest payments in the
beginning are so high.
Assume SOYD for a loan for 5 years. The sum would be 1+2+3+4+5
or 15. 1/15 is applied to principal, then 2/15, etc. Approx
midway the interest payment becomes higher.
George
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