#### Moneys Calc

```Hello I posted a question last weekend with several
replies on the differences of MS Money's calcs
compared to another loan software. The replies were
very helpful but I did not really get the bottom of what
was going on. (or maybe I could not understand the
replies)
In any case I sat down tonight and did some manual
mathematical analysis on the scenarios and I have
narrowed it to this. I would again appreciate all comments
and replies.
If I set up a loan in MS Money and let Money
calculate the payment amount then it produces
an amortization schedule which agrees with what
is normally called (where I live) the simple interest
plan of 12 equal months of 360 days in a year.
It takes the principal at each month and multiplies
it times the interest rate and then divides the answer
by 12 and that is the interest for that month.
If I set up an identical loan in my other loan software
(also letting it compute the payment amount and also
instructing it to use the 360 day year, since it has other
scenarios to choose from) then it agrees with MS Money
to the penney.
However...... If I keep the exact same setup in both
applications (MS Money and the other Software) but
change only the payment amount by making it a hard
set amount (leaving a leftover payment at the end) then
MS Money produces an amortization schedule that figures
an monthly interest rate of  .015% higher than the choosen
interest rate (calulated with the same scenario a 360 day yr)
This would seem to me an error or a confused conept one
or the other.
My other loan software continues to produce the pre chosen
interest rate even with the hard set monthly payment.
The data used was a principal of 450,000
an interest rate of  6.5%
the time of the loan was 23 yrs
the hard set payment was \$3,150.oo

```
 0
G
1/31/2006 2:38:59 AM
money 28651 articles. 4 followers.

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```My comment is that I duplicate what you see in Money in Excel using Excel's
PMT() vs. RATE() functions. (Difference in rate: 0.0153085286074925000%) Why
are you so intent on assuming your other loan software is valid? Did you try
any other calculators? Do you know how many places precision your other loan
software works to?

"G" <NoMail@NoSpam> wrote in message news:drmik002u3i@news1.newsguy.com...
>  My other loan software continues to produce the pre chosen
> interest rate even with the hard set monthly payment.
> The data used was a principal of 450,000
>                             an interest rate of  6.5%
>                   the time of the loan was 23 yrs
>         the hard set payment was \$3,150.oo
>
>

```
 0
1/31/2006 1:18:22 PM
```In microsoft.public.money, G wrote:

>Hello I posted a question last weekend with several
>replies on the differences of MS Money's calcs
>compared to another loan software. The replies were
>very helpful but I did not really get the bottom of what
>was going on. (or maybe I could not understand the
>replies)

Did you understand that I provided a *formula* as you requested, and
that I inquired if you had a formula for what you consider to be
*the* right way?

I provided URLs for amortization calculators that agreed with
Money's numbers, and I asked you if you could find a URL for a
calculator that agreed with your numbers.

If you did not understand the replies, perhaps I don't understand
you.

Are you making a point, and the questions are rhetorical?

```
 0
via_newsgroup (13113)
1/31/2006 6:40:11 PM
```>Why are you so intent on assuming your other loan software
>is valid?
------
Hi, thanks for the reply. I obviously do not express myself
connotatively since I do mean to promote the other software.
I'm just trying to understand why the interest rate would be
different for MS_Money with a preset payment than with a
calculated payment. I may scrap my other software and just
use Money but I need to be sure since I'm in the process of
selling a property that I may carry the mortgage on and I
than "his" software might possibly be charging.

```
 0
G
2/1/2006 12:35:26 AM
```>Did you understand that I provided a *formula* as you
>requested,
-------------
Hi and thanks for replying. Again I apologize for not getting
understand that it obviously produces it's own product.
What I don't understand at this point (not withstanding my
failure to see what you've been attempting to show me)
is why the interest rate would differ just by presetting the
payment amount. It just seems to me in theory of the desired
Loan agreement,  that the interest should always be figured
on the remaining principal and the divided by the payment date
increment whether it be a 12 month (30 day) scenario such as
Money appears to use or some other regardless.

>Are you making a point, and the questions are rhetorical?
No neither I'm just ( a dummy as you must perceive me) trying
to understand this thing since I'm selling a property and considering
holding the mortgage of which I need to keep track of payments
and interest etc since the principal will be capital gains tax and
the interest will be income taxed.
-------------------
>and that I inquired if you had a formula for
>what you consider to be *the* right way?
Again I'm not sure what is the right way but hopefully
soon I will find a way that I can convince a buyer that
this is the way considered correct.
As for any formula I'm using to manually check Money
or the other software, I simply did a process of elimination
in that I first did a test loan setup with Money letting it
calculate the payment amount as the unknown. I then
analyzed the amortization and found that multiplying any
payment date's principal by the original setup interest rate
gave an amount that when divided by 12 (months) gave
the interest shown for that month. Which meant to me that
it was using the 360 day (12 month) setup to calculate
interest. So I set my other software to this same setup
(since it has multiple setup capabilities) and it also matched
Money to the penny.
But then when I change them both to a preset payment
amount with "no" unknowns" the other software still divides
out and produces the same interest charged per month,
but Money then shows a little more interest charged per
month. I figured the exact amount that Money was charging
by multiplying the monthly interest (listed in the amortization
display) by 12 months thereby getting the yearly interest,
and then dividing that by that month's principal and got
..06515xxx for every month or  6.515%.or .015% high.
In other words
(That months interest * 12) / (That months principal)
=.06515xxxxx
So while I'm digging at trying to understand the why of this
difference (which obviously has something to do with the
way the formula works with and without a preset payment
or no unknown) I'm sure have given me sufficient data and
instruction that I should see the light by now, but I still
have not quite gotten it.

```
 0
G
2/1/2006 1:06:30 AM
```connotatively since I do mean to promote the other software.

^
oops I meant don't, sorry for the typo

```
 0
G
2/1/2006 1:08:42 AM
```It's math. You changed some things in the equation and held other things
constant and told Money to solve for the unknown. What did you think would
happen? The unknown would stay the same?

A + B = C

Given A=1 and C=5, there is one right answer for B.

Given A=1 and B=3, there is one right answer for C. Yes, that's a different
value for C than in the previous case.

"G" <NoMail@NoSpam> wrote in message news:drovoa0ikd@news3.newsguy.com...
> I'm just trying to understand why the interest rate would be
> different for MS_Money with a preset payment than with a
> calculated payment.

```
 0
2/1/2006 1:14:25 AM
```"G" <NoMail@NoSpam> wrote in message news:drovoa0ikd@news3.newsguy.com...
> >Why are you so intent on assuming your other loan software
>>is valid?
> ------
> Hi, thanks for the reply. I obviously do not express myself
> connotatively since I do mean to promote the other software.
> I'm just trying to understand why the interest rate would be
> different for MS_Money with a preset payment than with a
> calculated payment. I may scrap my other software and just
> use Money but I need to be sure since I'm in the process of
> selling a property that I may carry the mortgage on and I
> don't want the buyer asking me why I'm charging more interest
> than "his" software might possibly be charging.

Just agree to P&I, payment frequency, term, and balloon, if any. That's what
should be in the contract. You can use any hocus-pocus you want to call it a
certain APR, but what the contract states will be that they'll pay you X
dollars for X payments. The rest is semantics.
--
Chris Cowles
Gainesville, FL

```
 0
spam_magnet (1210)
2/1/2006 1:18:52 AM
```Several more comments below.

"G" <NoMail@NoSpam> wrote in message news:drovoa0ikd@news3.newsguy.com...
> I'm just trying to understand why the interest rate would be
> different for MS_Money with a preset payment than with a
> calculated payment.

I'd think you'd wonder why your software gets the same answer when you vary
the question. I suspect you need to look at the las month of the
amortization schedules to see what's different.

> I need to be sure since I'm in the process of
> selling a property that I may carry the mortgage on and I
> don't want the buyer asking me why I'm charging more interest
> than "his" software might possibly be charging.

I suggest you go and solve this in Excel and give the buyer the spreadsheet.
That way there's total transparency to how you did it.

```
 0
2/1/2006 3:19:12 AM
```>It's math. You changed some things in the equation and
>held other things constant and told Money to solve for
>the unknown. What did you think would happen?
----------
trouble getting across. I realize it's math. What I cannot
understand is why the concept of a loan is being held
hostage to a formula that takes care of one scenario as
planned but seemingly to me not another. It would seem
to me the formula would be modified to hold the same
concept for any option given. In other words I really
don't see the logic in charging any more monthly interest
"rate factor per principal" for one scenario than another.
But whatever I have learned what is an what is not.

```
 0
G
2/1/2006 3:38:38 AM
```I'm not sure why you keep thinking this takes "logic". Open Excel and do the
math. Assuming you trust its PMT() formula--reverse engineer even that if
you like or just use your rounded pmt number--then the amortization table is
really simple to calculate.

We could bat this back and forth for another hundred postings--though I
certainly won't play that long and I think Cal has already moved on. The
bottom line is that there is a correct answer, given a method of calculating
interest like 30/360. If you specify the PV, nper, pmt, and i, you will get
one amortization schedule. If you just specify PV, nper, and pmt, you will
let Money (or Excel or any reasonable implementation) solve for a better i
that results in a better--i.e., more equal--final payment principal. Suit
yourself how concerned you want to be over this. And calculate it any way
you'd like and get to any number that suits your purposes.

"G" <NoMail@NoSpam> wrote in message news:drpaft07kd@news2.newsguy.com...
> In other words I really
> don't see the logic in charging any more monthly interest
> "rate factor per principal" for one scenario than another.

```
 0
2/1/2006 4:25:13 AM

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