Financial Functions : PMT rounding error ?

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Level 1

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Financial Functions : PMT rounding error ?

Using the Financial Function PMT to calculate the payment on a mortgage I see discrepancy compared to several online tools from various institutions ( RBC, www.dinkytown.net etc )

Using the following numbers

Loan Amount : $208225.27
Interest Rate : 4.8
Amortization : 25

Payment Sch : Bi-Weekly Accelerated (which as I understand is the monthly payment divided by 2)

Online tools indicate a bi-weekly payment of $593.73

Numbers Calculation

PMT(rate, num-periods, present-value, [future-value], [when-due])

PMT((4.8%/12),300,208225.27,0) = -$1,193.12 monthly

therefore bi-weekly accelerated would equal ( 1,193.12 / 2 ) = -596.56

Any error in my logic to account for the 2$ + delta ?

iMac, Mac OS X (10.5.2)

Posted on Mar 16, 2008 12:17 PM

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Answer 1

KOENIG Yvan

Level 8

41,819 points

Mar 17, 2008 7:37 AM in response to NfldSon

Hello

You may look at this thread.

http://discussions.apple.com/thread.jspa?messageID=6699938

It seems that it's not easy to understand the descriptions of financial functions as they are given in the Help.

Yvan KOENIG (from FRANCE lundi 17 mars 2008 15:37:49)

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Answer 2

Mar 17, 2008 9:57 AM in response to NfldSon

NfldSon,

The discrepancy is likely to be in the details, not in the accuracy of the Numbers Function. Dinkytown.net defines Bi-weekly accelerated payments thusly:

Bi-weekly savings are achieved by simply paying ½ your monthly mortgage payment every two weeks and making 1 ½ times your monthly mortgage payment every sixth month. By the end of a year you would have paid the equivalent of one extra monthly payment. This additional amount accelerates your loan payoff by going directly against your loan's principal. The effect can save you thousands of dollars in interest and take years off of your mortgage.

It's really not so simple to calculate paying half a monthly payment every 2 weeks as opposed to a full payment every 4-1/3 weeks while adding-in half-month payments twice a year.

I could make the calculation, but without some assumptions about how the interest is compounded and how the rate is expressed, I'm not sure I'd match the website calculation. Suffice it to say that your calculations are probably correct based upon your assumptions and theirs are correct based upon their assumptions. The PMT function assumes a uniform series of payments over a specified number of periods, with the interest rate expressed on a per-period basis.

Hope this helps.

Jerry

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