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How to Calculate a Mortgage or Loan Term — How long will it take to pay back?
Tutorial 5

Calculate the term (number of payments) for a conventional loan or mortgage with a specified regular payment amount. All of our financial calculators will calculate the term of a cash flow. What is different about the Ultimate Financial Calculator is that it will also calculate the term after a payment or interest rate adjustment.

This example applies to our online    Ultimate Financial Calculator. The     C-Value! program for Windows works in a similar way and has a few more features including the ability to save your work.

All users should work through the first tutorial to understand basic concepts about the calculator.

To solve for an unknown term, follow these steps:

  1. Set "Schedule Type" to "Loan"
    • Or click the [Clear] button to clear any previous entries.
    • The top two rows of the grid will not be empty
    • Delete the 2nd row by selecting it and clicking on the [Delete] button
  2. Set "Rounding" to "Adjust last interest" by clicking on the {Settings} {Rounding Options}
  3. In the header section, make the following settings:
    1. For "Calculate Method" select "Normal".
    2. Set "Initial Compounding" to "Monthly".
    3. Enter 5.0 for the "Initial Interest Rate".
  4. Create a "Loan" series in row one of the cash flow input area.
    1. Set the "Date" to September 1st, 2016
    2. Set the "Amount" to 50,000.00
    3. Set the "# Periods" to 1
      • Note: Since the number of periods is 1, you will not be able to set a frequency.
  1. Click on the second row of the cash flow input area. Select "Payment" for the "Series"
    1. Set the date to October, 1st 2016 if it isn't already
    2. Set the "Amount" to "600.00"
      • This tells the calculator that the regular payment will be $600.00 a month until the loan is paid off.
    3. Use the [Tab] key to move to "# Periods". Set it to "Unknown" by typing a "U".
    4. Set the "Frequency" to "Monthly"

Your calculator should now look like this:

Calculate term
Preparing to calculate the term of a loan
  1. Calculate the unknown. The result is 103
Calculating term result
Calculated result
  1. To see a detail amortization schedule, showing the monthly payment allocation to principal and interest, click on the [Schedule] button above the input area.

Note: There can never be a fractional period. That is, if the "# Periods" is unknown, the calculator will only calculate an integer value as the result. This can result in rather large rounding issues. If "Rounding" is set to "Open Balance", the balance may be considerably above or below zero. If the loan is over paid (the open balance is below zero) then the user may reduce the calculated "# Periods" by one in which case the open balance will be greater than zero. Or if the open balance is greater than zero, the user may increase the "# Periods" by one and then the open balance will be below zero. In either case, if the user sets the rounding option to "Adjust last amount to reach "0" balance", the calculator will make the necessary adjustments so that the final balance is zero. As the user, you do not have to accept the calculated term. You are able to adjust the term and the rounding to meet your needs.

Variations: In some cases, the borrower may specify the amount they are willing or able to pay while the lender may state the term for the loan. Assuming the above facts, the lender may agree to the $600.00 payment but they may also say that the loan has to be paid off in eight years (96 payments). To accomplish this, modify step 5 above. Set the "# Periods" to 96. Also, set Rounding to "Adjust last amount to reach "0" balance".

Under this scenario, there is no unknown value. Click the [Schedule] button to view the schedule. While the debtor gets to make the $600 regular payment, we learn that to pay the loan off in eight years, the final payment will be $4,484.92

Adjusted loan term
Adjusted loan term with large final payment

Finally, it needs to be noted that calculating the term can result in a schedule with a significant rounding adjustment in the final period (assuming the calculator's rounding option isn't set to "Open Balance"). This is because the user set the payment amount and interest rate. The combination may mathematically require a fractional period. But there is no such option as a loan with 180 1/2 payment periods, regardless of what financial calculator is used. Therefore, the final payment will require an adjustment. Feel free to increase or decrease the calculated term as you desire to have a larger or smaller final payment.