What is the cumulative interest?
Kumulative interest is the sum of interest payments made from the loan for his life or in a certain period of time. The division of the future value (FV) loans is calculated by its current value (PV) and then deducting. It is usually used to compare costs for two loans to determine which is more economical. Given that interest obtained and paid from certain interest financial instruments such as bonds and mortgages are taxable or exempt from US tax, cumulative interest is also useful if the time to complete tax forms in the US comes. Unlike the effective annual percentage (APR), annual percentage yield and methods of analysis of discounted cash flows, cumulative interest does not take into account the time value of money or initial loan costs, making it a worse metric of the actual economic costs.
In the case of a conventional mortgage with a fixed rate, a payment interest accountA higher percentage of the total number of monthly payments at the beginning of the Loan Life and a decline in a percentage of the total payment with the age of the mortgage. Cumulative interest increases at a decreasing rate to the maximum and then decreases into a percentage of the total mortgage installment throughout the life of the loan; This occurs because the principal payments make up a larger and greater percentage of the total payment. When calculating the cumulative interest, it is assumed that interest compounds regularly mark the end of one and the beginning of the new period of the composition with each payment date. In general, the market Convention has an annual composition for consumer loans and mortgages.
In addition, the calculation of cumulative interest from mortgages and loans adjustable rate, which charges a variable interest rate, requires some assumptions. The interest rate on these loans is reset regularly, as should be determined clearly in the loan conditions. Therefore, prerequisites for what these FPRs calculation of cumulative interest or any meter of yield, rate or nInterest rates will have to be achieved. When calculating APR, it is assumed that the initial interest rate prevails, for example, for a lifetime of a loan. Real future rates may and often differ from the supposed future rates; The result is significant differences between what the debtor or the creditor initially calculated the cumulative interest and what actually proves.