If you happen to be taking accounting and are having a bit of trouble, there's one thing that you should do. Show some heart! Continue to work at it. Accounting isn't as difficult as it often seems. It's relevant no matter where you go, so keep in mind that it is very valuable to learn.
The accounting assignment I'm working on is asking students to complete a mortgage repayment schedule. An empty table is provided, making it even easier. This mortgage has an interest rate of 6%, with payments due every 6 months. The question also provides the blended principal & interest payment amount of $12,771 over 10 years. Payments are to be made each June 30 and December 31. No tricks here - The mortgage was taken on July 1, 2007, meaning there are exactly 6 months before the first payment. This question is textbook - just fill in the blanks.
I look up the paragraph about blended principal and interest payments in my textbook. When using this form of mortgage repayment, the cash payments stay consistent - in our case, $12,771 every 6 months. Examining the effect it has on the schedule, when our cash payments are identical, the reduction of principal (portion of our payment towards amount we owe) increases. This is as opposed to fixed principal payments, where as its name suggests, the reduction of principal is the same amount every period while cash payments decrease.
When we've paid for the mortgage at the end of the loan, there is no difference between schedule types. However, when our cash payments are fixed, it's a little easier to foresee what we owe at the end of each period. This may not be a noteworthy advantage, but when we use fixed principal payments, the very first payment we make is the largest payment, with each subsequent payment being slightly smaller. Perhaps it's comfort knowing the worst is over after the start.
No comments:
Post a Comment