I can show you a loan, Chuck, that would have your head spinning. The one I
have for my dental practice is a ten year note. The only way they would
lend me 100% right out of school with no co-signer was with very unfavorable
loan terms. My payoff in the first 3 years was the fully amortized amount
of the loan! In years 4 through 7, my payoff is the "net present value
discounted by prime". Essentially, what this means is that my interest
"penalty" (althought they won't call it that) is higher when prime is lower.
If prime was around 8%, my penalty would be about 5% of the outstanding
simple interest payoff. With prime around 4%, my "penalty" is about 20% of
the simple interest payoff. In years 7-10, the loan reverts back to a
simple interest payoff...so I'm essentially stuck in the loan for 3 more
years, since I've paid 4 years already.

When I signed the note, they showed me a simulated payoff amortization
schedule...but they estimated prime at 8.5%. In retrospect, this was
deceitful as hell. With prime currently at 4%, my payoff now is almost
20%higher than I believed it would be. I still have the original simulated
payoff amortization schedule on their letterhead, and I'm researching my
options to legally get out of this loan. I doubt I really have any,
however.

Essentially, it's the dental loan equivalent of a rule of 78's auto
loan...but much worse since prime is at an all-time low.





"Gould 0738" wrote in message
...
Sorry, but it doesn't work quite that way. Loans are amortized by a
fairly
complex equation, and your last statement is untrue. When the interest
rate
changes for the same principal balance and term, both the interest and
principal
components of the payment will change.

Joe Parsons


Hoo boy. :-(

Where are you coming from with this?

You're trying to make a very simple idea unduly complex.

If I borrow $500,000 for any number of years, 500,000 of the dollars shown
on
the total of payments line of the disclosure will be used to repay the
principal portion of the loan. Not a few less if the rate is X, vs a few
more
if the rate is Y- or vice versa.
It costs 500,000 plus interest to pay back
a 1/2 million dollar loan. The *only* variable that can enter into the
"total
of payments" math is the interest cost of the money, (including fees,
etc).

We would agree, I'm sure, that a loan for $500,000 from Bank X for a
certain
term should have the same monthly payment as
a loan for an identical amount, at an identical rate, for an identical
period
of time, from Bank Y.

If we compare two $500,000 loans from the same bank, one at 5% and one at
6%,
the 6% loan will have a higher payment than the 5% loan and it is *not*
because
the contract calls for any principal amount other than $500k to be paid
back.
The difference in monthly payment is generated
exclsuively by the difference in interest rate if the term is identical.

Look at an amortization book. There are only four variables that combine
to
determine a monthly payment: Principal balance, interest rate, periods at
which
the payment is collected and term of contract. When the principal balances
are
the same and the term is the same, (and if the periods of scheduled
collection
are the same) if there is a difference in payment between two contracts it
can
only be because the interest rate is different.