- #1

jgiannis

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I am looking into buying a home. I am trying to calculate the monthly "Principal + Interest." My bank actually provides a neat calculator that removes all of the guesswork (https://www.schoolsfirstfcu.org/wps/portal/Calculator?calculatorParamKey=MortgageCompare).

However, for the fun of math, I tried reaching the same value by using logic in my equation. But it turns out that my equation comes out different than the result from the bank's calculator.

**Can anyone explain where my logical approach goes wrong?**

Given the following information, here's how I ran the equation, from scratch, using logic:

Total Price of Home: $350,000

Down Payment (20%): $70,000

Principal Loan Amount to be Financed: $280,000

Interest Rate (APR-FIXED): 3.5%

Duration of Loan: 30 years

Frequency of Payment (monthly): 12

Thus, I figure that if I'm paying 3.5% per year on $280k, then every year I would be paying this much in interest: ($280k)*(0.035) = $9,800.

Thus, in 30 years, the total amount of interest that I would pay is: ($9,800)*(30) = $294,000.

Thus, the total amount of Principal + Interest that I would pay after 30 years would be: ($280,000)+($294,000) = $574,000

Thus, since there are 360 months in 30 years, the monthly cost of Principal + Interest would be: ($574,000)/(360) = $1,594.44.

However, using those same numbers, my bank's calculator says that the Principal + Interest would actually be $1,257.33.

I should note that I trust my bank's numbers. I found a finance equation online, and using that equation, I get the same result as my bank. However, the things that puzzle me so much are

**(a) where did my logical approach go wrong, and (b) what is the logic behind the "correct" financial equation?**To me, the "correct" financial equation makes no sense. I do not see the logic in it. Here is the equation that I'm speaking of:

Also, to make things a bit more complicated, I was helping someone calculate a monthly car loan. Here's the given information:

Total Price of Car: $21,000

Down Payment: $7,000

Principal Loan Amount to be Financed: $14,000

Interest Rate (APR-FIXED): 9%

Duration of Loan: 5 years

Frequency of Payment (monthly): 12

I used the equation above, and I get a value of $290.62. Sounds good.

I also used my own logical approach, and I get a value of $338.33. Also sounds good, but based on the above home loan discussion, I assume this is wrong.

The thing that puzzles me this time around is that the car dealership quoted us $338.33. It sounds like they used the same approach as I initially thought of. Why? Is there typically a different calculation in Home Loans vs Car Loans? Thanks for your time.