wcj365/loan_amortization

Loan Amortization

This project implements load amortization using different programming languages.

• Python
• R

References:

• https://www.investopedia.com/terms/a/amortization.asp#toc-what-is-amortization
• https://www.bankrate.com/mortgages/amortization-calculator/
• https://www.bankrate.com/loans/personal-loans/how-to-calculate-loan-interest/
• https://www.calculator.net/loan-calculator.html

Variable naming convention

• Upper-case letter represents constant value
• Lower-case letter represents derived value

Formula to calculate monthly loan payments

$m = P \dfrac{R (1 + R)^N }{(1 + R)^N - 1}$

• $m$ = the monthly loan payment (principal + interest)
• $P$ = the principal loan amount (original)
• $R$ = the interest rate (monthly. annual rate devided by 12)
• $N$ = number of payments over the loan’s lifetime (loan years times 12)

Formula to calculate interest payment for a given month

$interest = olb * R$

• $interest$ = interest payment
• $olb$ = outstanding loan balance at the end of last month

Note: Interest payment varies from month to month.

• Month 1
  • $interest01 = P * R$
  • $principal01 = m - interest01$
  • $olb01 = P - principal01$
• Month 2
  • $interest02 = $olb01 * R$
  • $principal02 = m - interest02$
  • $olb02 = olb01 - principal02$
• So on and so forth