From the course: Pre-investing: Before Investing in Real Estate
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Interest-only vs. amortized loans - Microsoft Excel Tutorial
From the course: Pre-investing: Before Investing in Real Estate
Interest-only vs. amortized loans
- Alright, in this lecture, we're going to talk about the difference between interest only versus fully amortized loans. But before we get there, let's revisit the components of a loan first. What do they have all in common? Well one is there's always a principal amount, or the amount that you're borrowing. So regardless of whether it's interest only or amortized, your loan has a loan amount. How much did you borrow for your purposes? Second, there's always going to be an interest rate associated with a loan. So that is the cost of borrowing. That's how much it's going to cost you to borrow that amount from, say, a bank or a lender. Third is there's always going to be a loan term or the length of the loan. Now, the length of the loan means different thing, whether it's interest only or fully amortized. We're going to see the difference there. So all loans have these three things. Now some loans are amortized and some aren't, and now let's explore what the difference means. First let's…
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