If you borrow money from the bank, do your return payments stay the same each month?

Question

If a bank offered you a loan at 5% compounded monthly, does that mean your payments grow each month?

Answer 1

No, your payments are calculated by a smoothing technique over the life of the loan which incorporates the full sum of compound interest but spreads the payments evenly.

Hopefully this would be a fixed rate loan, because if you choose a variable rate loan the payment amount might change with a corresponding change in the prime rate. But it still would run according to a smoothing type of calculation, that would remain fixed within a certain window or period.

Also, if the bank quotes you a rate of 5% apr, that is the annual percentage rate. Then if it says compounded monthly the 5% is divided by 12 and the compounding formula is applied which takes each subsequent balance and recomputes the interest. But as I stated above they do this calculation with the computer and then reapply the whole compounded interest over the life of the loan and spread it across the number of payments with the principal to make them even.

Answer 2

No. The only time return payments will fluctuate is if a loan has a variable or resetting rate or a baloon payment (which means one very large payment in the future). The monthly compound only indicates how and when interest is calculated. Most likely you will pay the same amount every month under this situation, but a different amount would be applied to interest and principle.

Answer 3

5% monthly is very bad, it should be more like 5% yearly. But no, your payments remain the same. Ususally what they do is take your loan amount lets say $100 at 5% a year. They add on the interest up front so now you owe the bank $105. If you have 12 months to pay it off you would have to pay $8.75 a month.

Answer 4

It means that you are borrowing a fixed sum of money for a fixed interest rate for a fixed term. Your payments are due on or before the same date each month....not after the due date!

For example, if you borrow $10,000.00 at 5% interest for 5 years on 3/15/07 your payments will be $188.71. You will have to pay $188.76 on or before the 15th of each month for 5 years (60 months). Your first payment will be due 4/15/07 and your final payment will be due 3/15/12.

Answer 5

no, your payments will useally stay the same with a loan like that.

Oh and dont listen to that first guy, that is a normal loan, he doesnt know what he is talking about. But it this way credit cards are compounded daily. So monthly isnt bad. If you can just pay more, even if it is ailttle more then your payments are to help pay it off sooner and with you paying less interest.

Answer 6

They may stay the same, grow, or decline. The classical mortgage product had level payments over its entire length (typically 30 years), but newer products have adjustable rates and adjustable terms, with the possibility of a fixed rate and/or fixed payments (which may cover all the interest, some of it, or all of it plus some principal curtail) for a fixed period of time, followed by different terms thereafter. You can get a better feel for this by looking at various mortgage products available from Merrill Lynch's real estate lending arm, www.mlcc.com.

Answer 7

yes, your payments would grow each month. Whether your payments stayed the same or changed really depends on how the loan is structured; you should discuss this with somebody who specializes in loans at a local bank near you.

Answer 8

Payments stay same each month... amount of interest and principal paid change each month....interest will go down and principal will go up....

Answer 9

Your repayments should remain the same each month, unless the interest rate rises (or decreases), in which case your repayments will be adjusted automatically.

Answer 10

Compounded monthly? Ouch! That ain't a good offer....for you.