Thursday, March 12, 2009

Calculator Tip: How To Figure Out Monthly Payment

In a prior post, I went over different financial calculators which is a necessary tool needed in the world of mobile home investing.

Personally, I use the HP 10B II. I like the long vertical shape as opposed to the HP 12C, which is more of a horizontal shape. Plus, it's less pricey than the HP 12C. If you are just starting out and just need a basic financial calculator, the HP 10B II would be fine.

Back to the financial calculator. When calculating the monthly payment, you will need 4 variables:

1. The present value (PV) - What is the sales price?
2. Interest (I/YR) - How much interest are you charging?
3. Number of Months (N) - How many months?
4. Future Value (FV) - Usually, this is the amount after everything has been paid off, usually "0".

Once you have all the above variables, then you can calculate the monthly payment.

For example, say you have a mobile home you are selling for $10,000 at 12.75% interest for 4 years. Let's plug in the numbers:

PV =10,000
I/YR = 12.75
N = 48
FV= 0

On your financial calculator, make sure everything has been cleared. Then, start punching in the numbers like this:

1. Punch in 10,000 and then the PV button.
2. Plug in 12.75 for I/YR button.
3. For N, I put the number of months. (Remember to make sure your P/YR (payments per year) which is the same button is set to 1 since it's annual interest, not compounded monthly or quarterly).
4. Plug in "0" for FV
5. Then you're ready to figure out the payment. Hit the PMT button to get $267.03.

If you didn't get $267.03 for the PMT, go back and try again. Remember, you should always double check your work - you can always do a financial calculation online or get a financial calculator program for your computer.

Happy calculating!

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