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AMORTIZEIT! (tm) USER GUIDE VERSION 2.1 Pine Grove Software 23 Flower Hill Drive, Suite 1600 Trenton, NJ 08638-1203 (609) 730-1430 (800) 242-9192 Fax: (609) 730-1530 Copyright, 1995 Pine Grove Software, All Rights Reserved. AmortizeIT! is copyrighted software and as such is protected by the laws of the United States. You may distribute a shareware version of this software to others but you may not sell it. If you are a distributor of shareware software, you may charge up to $5 for your disk duplication services. This product may NOT be distributed along with any other product that is being sold for profit without the expressed, prior written permission of Pine Grove Software. There are other terms that you must meet in order to distribute this program. Please see the README.com, VENDINFO.diz and VENDOR.doc files for additional details. AMORTIZEIT! USER MANUAL page 1 SOFTWARE LICENSE AGREEMENT The registered user of AmortizeIT! is entitled to make backup copies of the software for the sole purpose of protecting his investment. This license allows you to use one copy of AmortizeIT! on one computer at a time. You may use your copy of AmortizeIT! on different computers provided there is NO POSSIBILITY of it being used on two computers at the same time. Do not confuse this copyright notice with the user-supported method of distribution. If you use this program, you are honor bound to pay the licensing fee. The method we choose to use to distribute version 2.1 of this software is simply on a "try-before-you-buy" basis. AmortizeIT! is NOT FREE SOFTWARE. And if you paid a fee to anyone other than Pine Grove Software (or an authorized retail distributor), you did not pay for a license. If you have any questions concerning this license agreement, please call us at (800) 242-9192 or (609) 730-1430. AMORTIZEIT! USER MANUAL page 2 ACKNOWLEDGMENTS This is the second major release of AmortizeIT!. Version 2.1 has incorporated many of the changes that have been requested by our users. We hope you find it useful as well as a pleasure to use. AmortizeIT! 2.1 has been two and a half years in the making. During this time, we've had many people look at the program to get input from actual users. This in and of itself has been a valuable experience for us. It has also been trying at times. (Because a user made an excellent case for a change, we threw out about 3 months worth of programming effort.) But we think that we...and you...have a better program because of it. While many people have contributed to this program, we would like to thank the efforts of two individuals, Morris A. Nunes of Falls Church, Virginia, and Bruce Genereux of Palm City, Florida. Both made a number of very useful suggestions. Mr. Nunes also kindly contributed an explanation of the Rule of 78's that is used in an appendix of this manual. A special note of thanks also goes out to Keith Aleshire of Computer Consumer Services, Inc. Keith wrote a large part of this manual. He is to be commended for his patience and for his fortitude in putting up with this project over the better part of the year that he worked on it. I know that you will find his work to be excellent. And rest assured, any shortcomings in the manual lay on my shoulders and not his. Finally, AmortizeIT! v2.1 was written using Borland's Pascal version 7.0. We having been using versions of Borland's Pascal ever since we released our first software package for the IBM PC in 1985. However, as fine of a tool as this is, we simply would not have been able to have a program that is of a high a quality as we hope we have without the tools from Turbo Power Software. Turbo Power publishes Object Professional which is used extensively throughout AmortizeIT!. To these individuals and companies, our heartfelt thanks. Karl Thompson President Pine Grove Software AMORTIZEIT! USER MANUAL page 3 TABLE OF CONTENTS SOFTWARE LICENSE AGREEMENT .....................2 ACKNOWLEDGMENTS ...................................3 INTRODUCTION ......................................7 DISCLAIMER ........................................8 ABOUT THIS MANUAL .................................9 KEYSTROKES .....................................9 PROCEDURES .....................................9 * To understand a procedure .................9 MENU NAMES .....................................9 PREPARING TO USE AmortizeIT! .....................10 FIRST THINGS FIRST ............................10 What You Need .................................10 Microsoft Windows Users .......................10 Upgrading From Earlier Versions ...............10 INSTALLING AmortizeIT! ........................12 * To install AmortizeIT! automatically .....12 * To install AmortizeIT! manually ..........13 STARTING AmortizeIT! ..........................15 * To start AmortizeIT! .....................15 Mouse Support .................................15 GLOBAL OPTIONS ................................16 * To set AmortizeIT! global options ........16 Registered User Options .......................17 THE AmortizeIT! FILES .........................17 OVERVIEW .........................................19 WHAT'S A ROUTINE? .............................19 LOAN CALCULATOR ...............................20 AMORTIZATION SCHEDULE .........................21 Local Menu ....................................21 INTEREST DUE/CALENDAR MATH ....................22 REMAINING BALANCE .............................23 ACCELERATED PAYMENT ...........................24 BALLOON PAYMENT ...............................25 REFINANCE LOAN ................................26 A GUIDED TOUR ....................................28 IMPORTANT KEYS ................................28 ENTERING INFORMATION ..........................29 GETTING HELP ..................................30 EXPLORING THE LOAN CALCULATOR .................31 * To use the Loan Calculator routine .......31 EXPLORING THE AMORTIZATION SCHEDULE ...........33 The "Correct" Payment .........................33 * To use the Amortization Schedule routine ..33 There's More to Learn .........................43 AmortizeIT! REFERENCE ............................44 ACCELERATED BIWEEKLY ..........................46 ACCRUED RATES .................................46 APR DETAIL SCREEN .............................47 BALLOON SCHEDULES .............................47 AMORTIZEIT! USER MANUAL page 4 CALENDAR YEAR TOTALS ..........................47 CANADIAN MORTGAGES ............................48 COMPOUNDING PERIODS ...........................48 CONSTRUCTION LOANS ............................48 CUSTOM PAYMENT OPTION .........................48 Method One ....................................48 Method Two ....................................49 CUSTOM REPORTS ................................49 CUSTOM SETUP ..................................49 DATE X DAYS FROM DATE .........................49 DAYS BETWEEN DATES ............................50 DBASE FILE FORMAT .............................50 DISCOUNTED MORTGAGE ...........................50 DUE DATE OR PAYMENT DATE SCHEDULES ............50 EXACT DAY INTEREST ............................50 EXTRA PAYMENTS ................................51 FILE MAINTENANCE ..............................51 FISCAL YEAR TOTALS ............................51 FIXED PRINCIPAL PAYMENT LOANS .................51 INITIAL INTEREST ONLY PAYMENTS ................52 INTEREST BETWEEN DATES ........................52 INTEREST ONLY LOANS ...........................52 INTEREST PAID .................................52 INTEREST SAVED ................................52 INTEREST FOR NUMBER OF DAYS ...................53 INTERNATIONAL CURRENCY SUPPORT ................53 INTERNATIONAL DATE FORMATS ....................53 LEASE .........................................53 LOAN ADVANCES .................................53 LOAN TOTALS (RUNNING TTLS) ....................54 LOAN YEAR TOTALS (YTD TOTALS) .................54 MISCELLANEOUS FEES ............................54 MORTGAGE ANALYSIS .............................54 NEGATIVE AMORTIZING LOANS .....................54 ONE TIME FEES .................................55 ORDINARY INTEREST .............................55 PAYMENT PERIODS ...............................55 PENALTIES .....................................55 PERIODIC ADJUST VS. ANNUAL ADJUST .............55 POINTS ........................................56 PREPAID PRINCIPAL ACCELERATION ................56 PRINCIPAL PAYMENTS ............................56 PRINT SKIPPED PERIODS & PROOF PAYMENT FEATURE ..56 PRINTING PROBLEMS .............................57 QUICK PRINT SCHEDULE ..........................57 RANDOM PAYMENTS ...............................57 REGULATION "Z" APR DISCLOSURE .................57 RULES OF 78'S .................................58 RUNNING TOTALS (RUNNING TTLS) ...............58 SHORT/LONG FIRST PERIODS .....................58 SKIPPED PAYMENTS ..............................58 AMORTIZEIT! USER MANUAL page 5 SOLVE FOR UNKNOWN .............................59 SPEED ENTRY ...................................59 TAX CONSEQUENCES ..............................59 TAXES .........................................60 U.S. RULE LOANS ...............................60 YEAR-END TOTALS (YTD TOTALS) ..................60 APPENDIX A: COMMAND LINE OPTIONS .................61 Printing Problems .............................61 APPENDIX B: REALLY CUSTOMIZING AmortizeIT! .......62 * To customize AmortizeIT! .................62 APPENDIX C: FREE MEMORY AND AMORTIZING PERIODS ...63 APPENDIX D: AmortizeIT! UNDER WINDOWS ............64 * To use AmortizeIT! under Microsoft Windows 3.1 ..............................64 AmortizeIT! for Windows? ......................65 APPENDIX E: NEW FEATURES IN VERSION 2.1 ...........66 APPENDIX F: TECHNICAL SUPPORT ....................67 APPENDIX G: DATA FILE SPECIFICATION ..............68 dBASE Data File ...............................69 Notes .........................................69 APPENDIX H: EXPLANATION OF THE RULE OF 78'S .......71 The printed manual provided with the registered version of the program has a very detailed index. AMORTIZEIT! USER MANUAL page 6 INTRODUCTION Thank you for selecting AmortizeIT!. We believe you have chosen a program second to none for loan calculations. AmortizeIT! performs more calculations faster and with less effort than any other program we have seen. There is never any programming needed to solve a problem. You simply fill in the blanks and press <F9> to calculate for any unknown variables. While AmortizeIT! is widely used by professionals who work in many industries, we also hope this version is useful for the non-professional. We have made every effort possible to make AmortizeIT! an educational program. If you are not familiar with different ways to amortize a loan or with the concept of present value, play with this program and read the help screens. You will be better informed because of it. Much of what is found in this manual is also available through the program's help function. If you need assistance, press the <F1> key and a detailed help window will appear. If you are at the main menu and need information about one of the routines, simply highlight its name and press <F1>. A description will be displayed. Since the help text is so extensive, most of this manual discusses how these routines can be used. After we review several of the basics of this program in the overview section of this manual, we discuss features that may not be so obvious. These examples are not meant to be exhaustive. Rather, they illustrate several ideas and are meant to get you thinking about the power of the program you are about to use. We hope you take the time to at least browse through the manual. No matter how easy a program is to use, you will undoubtedly learn something by reading it. We want you to get the most from our software as you possibly can. AMORTIZEIT! USER MANUAL page 7 DISCLAIMER While these routines are easy to use, financial planning requires careful study. Therefore, Pine Grove Software specifically disclaims all warranties, expressed or implied, including but not limited to, implied warranties of merchantability and fitness for a particular purpose or use. In no event shall Pine Grove Software be liable for any loss of profit or any other commercial damage, including but not limited to, special, incidental, consequential, or other damages. We suggest that you obtain professional guidance when making any major financial decisions. We are NOT responsible for your interpretations of the results obtained with these routines, even if it is shown there is an error in the programming of a routine. While great care has been taken with regards to the accuracy of these routines And the results that these routines produce have been checked against a number of sources, it is still possible that you may get different results than what you had expected. Some of these differences are caused by internal rounding of the calculations (usually off by no more than 1/10 of 1% over say 20 years), by the way interest and periods are calculated, by an error in using the program, or by possibly, in an extreme case, by an error in programming. When using this program, please use common sense. If you are about to make what could be an important financial decision, triple-check the results obtained with this or any calculator. AMORTIZEIT! USER MANUAL page 8 ABOUT THIS MANUAL This manual uses a few simple conventions of which you should be aware. KEYSTROKES Throughout this manual, we mention keys or key combinations such as <Y> or <Ctrl-R>. When two keys are listed, you must HOLD DOWN the first key (such as Ctrl) and PRESS the second key (such as R). We may also require you to press the function keys, such as <F1> or <F3>. F1 through F12 are the special function keys found on the top or left side of your keyboard. See "Important Keys" later in this user guide for details on what each key does. PROCEDURES Step-by-step procedures are marked by a heading preceded by a square box and usually the word "To," such as: * To understand a procedure DOS COMMANDS: Commands you give your computer are followed by the word "<Enter>", which means to press the <Enter> key, such as: DIR <Enter> MENU NAMES We indicate a menu choice by placing it within curly brackets ({}). For example, {Loan Calculator} is the first menu choice from the main menu. AMORTIZEIT! USER MANUAL page 9 PREPARING TO USE AmortizeIT! FIRST THINGS FIRST If your AmortizeIT! disk contains a README.COM file, the information contained in it may supersede the directions found in this manual. To check the README.COM file, put the original disk in drive A or B. Next, change to that drive by typing: A: <Enter> where A: is the letter of your disk drive. Next, type: README <Enter> You will see any last-minute instructions for using AmortizeIT! program. You can print the instructions by pressing <Alt-P>. What You Need AmortizeIT! requires the following: * An IBM or IBM-compatible computer using MS-DOS or PC-DOS version 2.1 or greater. * A hard drive with at least one megabyte (1024K) of free disk space. NOTE: You may run AmortizeIT! on a 720K floppy, but you have to have a hard drive to install it first. * 512K of free random access memory (RAM). NOTE: The more free memory, the more amortizing periods AmortizeIT! can calculate. See "Appendix C: Free Memory and Amortizing Periods" for more information. Microsoft Windows Users You should exit Windows and install AmortizeIT! from the DOS prompt. After AmortizeIT! is installed onto your hard disk, see the instructions in the Appendix D for instructions on running AmortizeIT! under Windows. Upgrading From Earlier Versions If you are upgrading to this version of AmortizeIT!, make sure that you install to a new directory on your hard drive. The data files created by this version of AmortizeIT! ARE NOT compatible with earlier version of the program. Therefore, you may want to keep an earlier version of your program on your hard drive until AMORTIZEIT! USER MANUAL page 10 you re-enter any loans that you may be tracking. AMORTIZEIT! USER MANUAL page 11 *SUPERSEDED BY README FILE* INSTALLING AmortizeIT! NOTE: Before you install AmortizeIT!, exit all programs, such as Microsoft Windows or DOS shells. Go to the drive that you wish to install to, such as C:\. (You can run AmortizeIT! under Windows but you should install it when Windows is not running. You can install AmortizeIT! either automatically using its built-in installation program or manually. The procedures for both methods are provided below: NOTE: We strongly recommend that you use the automatic installation program. * To install AmortizeIT! automatically If you received AmortizeIT! on a disk, use this procedure. 1. Place the AmortizeIT! disk into drive A: or drive B:. 2. Type: A:INSTALL <Enter> where A: is the letter of the drive in which you installed the disk. 3. Press any key to bypass the welcome screen and continue installation. NOTE: If you want to cancel installation, press the Escape (Esc) key at any time. 4. Enter the drives to install to and from. You must tell AmortizeIT! from which drive you are installing the program. You also must tell it to which drive you are installing the program. 5. Enter the name of the directory to which you are installing AmortizeIT!. The default directory name for AmortizeIT! is \AMORT20. 6. Press the <Enter> key to accept your choices and continue the process. NOTE: If you are installing from 5 1/4" double-density disks, you may be asked to insert a second disk. 7. Verify your drive and directory choices by pressing <Y> AMORTIZEIT! USER MANUAL page 12 (Yes). AmortizeIT! will install its files onto your PC's hard disk. NOTE: AmortizeIT! does not modify any of your PC's start-up files, such as AUTOEXEC.BAT or CONFIG.SYS. 8. Press the <Spacebar> to finish the installation process. 9. Type: AMORTIZE <Enter> You then need to customize AmortizeIT! for your computer. 10. Enter your name and answer yes or no if you see different colors. 11. Press the function key F9 when finished and confirm your choices with <Y> (Yes) or <N> (No). When finished the AmortizeIT! main menu appears. 12. Press <Q> to Quit. * To install AmortizeIT! manually 1. Place the original AmortizeIT! disk into your floppy disk drive. 2. Switch to the hard disk onto which you want to install AmortizeIT!. For example, you may type: C: <Enter> to place AmortizeIT! onto drive C:. 3. Create a directory for AmortizeIT!. You may create a directory by typing, for example: MD \AMORT20 <Enter> 4. Switch to your new AmortizeIT! directory. If the directory you may is \AMORT20, you would type: CD \AMORT20 <Enter> 5. Copy the AmortizeIT! files from the disk to your directory. From the DOS prompt, type: COPY A:*.* <Enter> AMORTIZEIT! USER MANUAL page 13 where A: is the letter of the floppy disk drive containing the AmortizeIT! disk. NOTE: If you are installing from 5 1/4" double-density disks, repeat this step for the second disk. 6. Decompress the AmortizeIT! files. The AmortizeIT! files copied to your AmortizeIT! directory are compressed into the single file AMORT20.EXE. To decompress these files, type: AMORT20 <Enter> 7. Delete the AMORT20.EXE file. Once the AmortizeIT! files are decompressed, you can delete the compressed file AMORT20.EXE. Type: DEL AMORT20.EXE <Enter> AMORTIZEIT! USER MANUAL page 14 STARTING AmortizeIT! Once AmortizeIT! is installed, you can start it using these steps. * To start AmortizeIT! 1. Change to the drive onto which you loaded AmortizeIT!. For example, you may type: C: <Enter> if AmortizeIT! was installed on drive C:. 2. Change to your AmortizeIT! directory. For example, you may type: CD \AMORT20 <Enter> 3. Start AmortizeIT!. To start AmortizeIT!, type: AMORTIZE <Enter> When AmortizeIT! starts, you will see its logo. You may quickly proceed to the main menu by pressing the <Spacebar>. NOTE: For information on some command-line switches you can use when starting AmortizeIT!, see "Appendix A: Command Line Options." One of these switches, for example, bypasses the graphical start-up screen. NOTE: For information on using AmortizeIT! from within Windows, see "Appendix D: AmortizeIT! Under Windows." You may pick a menu choice in either of two ways. You may use your cursor keys to highlight a choice and press the <Enter> key. Otherwise, you can type the highlighted or uppercase letter of the choice you want. Mouse Support Version 2.1 of AmortizeIT! supports a mouse. For example, you may do the following: * Menus. Double-click on any menu item to select it. * Routines. Click on any field prompt (the question text) or field (the input areas) to move to a particular field. If the field is one that you can change it's value by pressing the spacebar, then you can also change it's value by clicking on AMORTIZEIT! USER MANUAL page 15 the question text with the mouse. If the routine needs to be calculated (the "Calc" message is displayed in the upper right-hand corner of the screen), then you can calculate the result by clicking on the "Calc" indicator. * Amortization Schedule Routine. When a schedule is displayed, you can click on an item on the bottom help line to access certain functions. For example, if you wish to display the next year of an amortization schedule, you can click on the <PgDn> text on the help line rather than pressing the PgDn key on your keyboard. * Help Window. If there is more help text for a subject than what fits in the window, you can click on the up or down arrows on the right side of the help window to view this text. If there is a cross reference help topic, you can select that topic by clicking on it. If the help index is displayed, you can select a topic by double-clicking on it. The help window will also have a diamond shape in the upper left corner. When the help index is displayed, clicking on the diamond will close the help window, otherwise clicking on it will display the previously selected help topic. GLOBAL OPTIONS You set AmortizeIT!'s global options such as currency type and date formats from the program's "Global Options" menu. * To set AmortizeIT! global options 1. Go to the main menu of AmortizeIT!. 2. Press <F10> to open the options menu. 3. Make your selections. You can make several choices from the options menu, such as: * Currency. Select German Deutschemarks, Japanese Yen or any other of 18 currencies. * Date. Select one of five date formats, including YY-MM-DD. * Rounding. Select your rounding method for payment. For example, selecting Payment will round payments up from 1.012 to 1.02. Otherwise, normal rounding is used. The last three choices allow you to round by adjusting the last payment, the last interest amount, or do no adjusting and show the error amount. NOTE: Since rounding usually affects only pennies, AmortizeIT!'s defaults will probably work just fine for most situations. * Port. Select to which printer port you want to print. The default is printer port one (LPT1). AMORTIZEIT! USER MANUAL page 16 When you finish with an option choice, you are immediately returned to the main menu. Registered User Options Registered users of AmortizeIT! receive the separate utility SLVSETUP.EXE for further customizing the program. With SLVSETUP.EXE, you can: * Change the number of lines per page. * Change the printer port. * Change the calculation options, including default interest rates and points. * Tell AmortizeIT! whether your monitor is color or monochrome. * Customize the AmortizeIT! menu colors. * Change the way menus appear and are chosen. * Set a default data path for storing amortization tables. THE AmortizeIT! FILES After installing AmortizeIT!, you should have the following files in your directory: File Name Purpose Required AMORTIZE.EXE AmortizeIT! main program file. Yes AMORTIZE.HLP AmortizeIT! built-in help text. Yes AMORTIZE.OVR AmortizeIT! companion file used to Yes reduce memory needed by AmortizeIT!. AMORTIZE.PIF Windows PIF file to run AmortizeIT! No best under Microsoft Windows (386 Enhanced or Standard mode) AMORT-1.ICO AmortizeIT! Windows icons No AMORT-2.ICO ERROR.COM List of known errors or bugs. No ERRORS.DAT Installation errors, if any. No README.COM Utility to view or print any No last-minute information about AmortizeIT! SLVIT4.COM SolveIt! 4.3 feature list No SLVSETUP.EXE Setup utility for AmortizeIT! to No customize colors, printer and more (registered users only) WHERE.COM Utility to view or print information No about getting technical support from Pine Grove Software WINDOWS.COM Utility to view or print information No about using AmortizeIT! with Microsoft Windows AMORTIZEIT! USER MANUAL page 17 NOTE: To save disk space, you may delete all files except those marked as required. AMORTIZEIT! USER MANUAL page 18 OVERVIEW AmortizeIT! is an umbrella under which several loan calculators reside. The program is tailored to the analytical needs of financial professional yet is simple enough for use by consumers. WHAT'S A ROUTINE? Throughout this manual, we refer to "routines." A routine simply is a calculation or series of calculations that are represented by a choice from the opening menu. Presently, AmortizeIT! has 7 routines. They are: * Loan Calculator * Amortization Schedule * Interest Due * Remaining Balance * Accelerated Payments * Balloon Payment * Refinance Loan Most routines are designed for a single purpose. However, some routines contain multiple functions. For example, the Amortization Schedule routine contains a Calc APR (annual percentage rate) function. Below, we provide a quick overview of each routine. NOTE: If you are interested in what new features are supported in AmortizeIT! 2.1, see "Appendix E: New Features in Version 2.1." NOTE: The Amortization Routine is designed for detailed analysis of a loan. All of the other routines are designed to do very fast "what-if" analyses. AMORTIZEIT! USER MANUAL page 19 LOAN CALCULATOR The Loan Calculator helps you analyze a loan. NOTE: For a detailed analysis of a specific loan, use the Amortization Schedule. The Loan Calculator is for what-if analyses only. There are four basic variables for any loan: * Amount of loan * Interest rate * Length, or term, of the loan * Regular payment amount. With Loan Calculator, you provide the values for any three of the variables, and AmortizeIT! will solve for the others. The Loan Calculator also lets you fine-tune your analysis. For example, the payment method may be either payment in advanced or payment in arrears. Also, you can change the compounding period (such as quarterly vs. monthly) or amortizing method. AMORTIZEIT! USER MANUAL page 20 AMORTIZATION SCHEDULE The Loan Calculator helps you evaluate many loan scenarios very quickly. The Amortization Schedule is the most powerful routine in AmortizeIT!. It is meant to display a classic loan amortization schedule with little effort. On the other hand, it allows you much flexibility and power. You enter a loan amount plus origination date, points paid, first payment date, amortizing method and more. You then can: * Display a loan schedule. * Print the loan schedule. * Save the loan to a unique file for future analysis. When a schedule is displayed, you can press the letter <A> to jump to any year of the amortization. Meanwhile, AmortizeIT! displays the yearly and running interest and principal totals. There is a fundamental difference between the Amortization Schedule routine and the other routines in AmortizeIT!. The Amortization Schedule provides detailed analysis of a loan, such as: * Interest saved as the result of random extra payment. * Taxes saved as the result of mortgage interest. * Remaining balance on an exact date. * Interest paid in a tax year. All other routines, such as the Loan Calculator, are more theoretical in nature. They are designed for, primarily, very quick "what-if" analyses. For example, imagine you want to calculate your mortgage payment if the adjustable rate mortgage goes down 3/8's of a point. For such a calculation, use the Loan Calculator routine. On the other hand, if you need to see how much interest you will pay in the first year of a loan, use the Amortization Schedule routine. Local Menu The Amortization Schedule is the only routine in AmortizeIT! where there is a local menu. Simply press <F10> to access the menu. Using this menu, you can enter miscellaneous fees in addition to principal and interest, calculate APR interest rate, save loan date and more. AMORTIZEIT! USER MANUAL page 21 INTEREST DUE/CALENDAR MATH The Interest Due routine calculates the interest due between any two dates or for any number of days. For example, you enter the first date (often the day the last payment was made) and then enter the date the loan is being paid off or the date funds are being withdrawn. Otherwise, you can skip to the next field and enter the number of days; the ending date is automatically calculated for you. When finished, the interest due for that period is then calculated. This routine also lists the days of the week the payments and payoffs are being made. You can also calculate simple interest by setting the compounding period to "None." Overall, this routine provides a quick way to audit interest due or payable for any financial instrument. NOTE: Since you can key in a date and a number of days, the Interest Due is very handy for calendar math. AMORTIZEIT! USER MANUAL page 22 REMAINING BALANCE The Remaining Balance routine calculates exactly what the remaining balance is after any particular payment. With every type of loan (except interest-only loans), the remaining principal balance decreases with each payment received unless there is no negative amortization. You enter: * Loan amount * Total periods * Annual interest rate * Payment number at which you want to know the loan balance You can also enter the payment period, compounding period, payment method and amortizing method. Knowing these, AmortizeIT! then calculates the remaining balance and payment amount. This routine helps you do a series of "what-ifs" when deciding to pay off a loan after a certain number of payments. With Remaining Balance, you can calculate how much the payoff is after so many payments. NOTE: Use the summary feature in the Amortization Schedule Routine to calculate the remaining principal balance for a specific date. AMORTIZEIT! USER MANUAL page 23 ACCELERATED PAYMENT The Accelerated Payment routine quickly allows you to see the interest saved as the result of extra payments. If you pay a little extra toward principal on a regular basis, you can save a substantial amount of interest over the course of a mortgage. You can even enter when the accelerated payments will begin, such as the sixth month of a 20-year loan. You simply tell AmortizeIT!: * Loan amount * Total periods * Annual interest rate * At what period you want to increase the payment * The extra amount you wish to pay You can also enter the payment period, compounding period, and payment method. Knowing these, AmortizeIT! then calculates the number of periods to pay off the loan, the total interest paid the and total interest saved due to the extra payment. NOTE: This routine will handle REGULAR extra payments, while the Amortization Schedule will allow you to key in IRREGULAR extra payments. AMORTIZEIT! USER MANUAL page 24 BALLOON PAYMENT The Balloon Payment routine allows you to customize your own loan. You enter the following: * Loan amount * Interest rate * Balloon payment * Payment number when the balloon is due Knowing these, AmortizeIT! then calculates your payment. For example, imagine you want to loan $125,000 with a balloon of $75,000 due after 5 years. This routine tells you what the periodic payment will be to end up with a remaining balance of $75,000 after 60 monthly payments. NOTE: You may need to change your expectations of this routine. In earlier versions of AmortizeIT!, we often had customers requesting AmortizeIT! to calculate the balloon payment and not the periodic payment that results in a desired balloon. AmortizeIT! already does that! If you need to know what the balloon payment is after say 60 periods, use the Remaining Balance routine. The balloon payment is simply another name for the remaining balance! AMORTIZEIT! USER MANUAL page 25 REFINANCE LOAN The Refinance Loan routine lets you analyze if it's economical for you to refinance your loan. This routine considers points paid, up-front loan costs, taxes and projected length of ownership. It reports the dollar cost difference between the two mortgages in discounted dollars. It also considers the effect of reinvesting idle dollars and the effect a lower-interest payment will have on income taxes. For example, if you have a mortgage at 9.5% and can get a mortgage with a rate of 7.75%, should you refinance? This routine considers the refinancing costs, your tax bracket, length of time you'll own the property and other factors before giving you a recommendation. If the two loan amounts are the same, then the Refinance Loan routine calculates the interest accrued until either both of the loans are paid off or until the property is sold. The total interest is discounted to today's dollars (if "0" is not entered for a discount rate.) If the payment for the second loan is less than the payment for the current loan and if the interest is deductible, AmortizeIT! calculates the amount of additional taxes that would be due because of the lost deduction. Next, if the TOTAL of the second loan's payments are less than the TOTAL of the current loan, then the extra monies are invested at the assumed discount rate. NOTE: The discount rate is the rate of return that you can expect (or that you desire) to earn on your cash investments, such as a 7-percent municipal bond or a 15-percent aggressive mutual fund. The Refinance Loan routine calculates the bottom line by taking the difference paid in direct loan costs (interest, points, closing costs, etc.) and subtracting the extra taxes that will have to be paid if the proposed financing is less costly than the current financing. It then adds any possible extra investment income as the result of lower payments and subtracts any lost investment income if the proposed payments are higher than the current financing. NOTE: If the possible financing is for more than the current financing, the results of the additional borrowed monies are calculated and added to the results outlined above. If the possible financing is for less money than the current financing, then the lost investment opportunity for the AMORTIZEIT! USER MANUAL page 26 monies used to pay down the loan are calculated and subtracted from the results outlined above. AMORTIZEIT! USER MANUAL page 27 A GUIDED TOUR In this chapter, you will be led on a tour of two of AmortizeIT!'s routines: the Loan Calculator and the Amortization Schedule. This tour will help you better understand the program. First, though, you should learn the basics of operating AmortizeIT!. IMPORTANT KEYS AmortizeIT! often relies on a handful of function keys for important parts of the program. * <F3>. The <F3> function key prints the financial calculations to the printer. Occasionally, you may have a choice to print the results to the printer, screen or a disk file. * <F4>. The <F4> function key sends a line feed to the printer. Use this key to advance the paper one line at a time to give you proper spacing between printing each routine. NOTE: By using <F4> instead of your printer's line feed key, you can keep AmortizeIT! in synch with the printer, thus preventing printing from splitting across two pages. * <F5>. The <F5> function key sends a form feed to the printer, ejecting the current piece of paper. Use this key to advance the paper one page at a time. Use this key instead of the form feed button on your printer. NOTE: If you are doing "what-ifs" with, say, the Loan Calculator routine and you want to print the results for two calculations, press <F4> two or three times after printing the results from the first calculation but before you print the results for the second calculation. Print the second calculation and then press <F5> to eject the page. * <F9>. The <F9> function key does an action, typically calculating the results of the routine you are using. Consider this the "DO IT" key. * <F10>. The <F10> function key displays the local menu. The Local Menus provide additional options for the given routine. From the main menu, for example, you can use the local menu to change items such as currency type, date format, rounding method and printer port. OTHER KEYS: AmortizeIT! uses other keys to do certain functions. They are: * <Tab> or <Enter> - Accepts your changes for the current field and moves you to the next field or menu. AMORTIZEIT! USER MANUAL page 28 * <Shift-Tab> - Moves you to the previous field. * <Ctrl-R> - Restores the original values of a field. * <Ctrl-Y> - Clears the values of a field. NOTE: If AmortizeIT! keeps beeping at you when you are entering information, try clearing the field using this key combination. * <Ctrl-T> - Deletes the word to the right. * <Up/Down> - Moves the cursor from one field to the next. * <Left/Right> - Moves the cursor elsewhere on the current field. * <PgUp/PgDn> - Moves you to the top or bottom of the column, respectively. NOTE: When an amortization schedule is displayed, <PgUp>/<PgDn> will change the year displayed. * <Ctrl-PgUp/Ctrl-PgDn> - Moves you to the first or last field, respectively. * <Ctrl-Left/Ctrl-Right> - Moves the cursor one word at a time to the left or right, respectively. * <Ctrl-Home> - Deletes words from the beginning of the subfield to the cursor. For example, when entering a date in the MM-DD-YY format, use <Ctrl-Home> when on the second D to delete just the day part. (DD is one example of a subfield.) * <Ctrl-End> - Deletes words from the cursor to the end of the subfield. * <Del> - Deletes the character at the cursor. * <Bksp> - Moves the cursor backwards, deleting any character there. * <Esc> - Exits you from a menu, help topic, or routine. In essence, pressing the Esc key means "I don't want to be here," returning you to the previous menu, topic, or position. * <Home> - Jumps the cursor to the start of a field. * <End> - Jumps the cursor to the end of a field. * <Ins> - Lets you insert characters at the cursor. ENTERING INFORMATION When entering information into an AmortizeIT! routine, follow these guidelines: * When entering a date in the format MM-DD-YYYY, do not type the slashes separating each part. AmortizeIT! automatically provides them. With a date, you can use the <Tab> key to move to any of the three subfields (month, day or year). For the year subfield, you can enter the last two numbers of a year AMORTIZEIT! USER MANUAL page 29 and AmortizeIT! will complete the rest if the year is in this century. NOTE: If you do not enter a valid date, AmortizeIT! will warn you through a beep when you press the <Enter> key. * For numeric values such as a dollar amount or number of payments, simply enter the numbers. To clear a value from the field, press <Ctrl-Y>. To restore the original values, press <Ctrl-R>. * Some AmortizeIT! fields have limited choices, such as possible payment frequencies (Monthly, Bimonthly, etc.). For such fields, you either can press the <Spacebar> or the dark gray <+> or <-> keys found on your keyboard's numeric keypad. Once your choice is displayed, press the <Enter> or <Tab> key to accept the value and move on. GETTING HELP If you ever need help with any menu choice or item at any time, simply press the <F1> function key. This key provides pop-up text that will help you through your mastering of AmortizeIT!. For example, if you move the highlight bar to one of AmortizeIT!'s main menu choices and press <F1>, you can see a description of the features under that menu choice. This help is context-sensitive; the help text displayed depends on which area or field you are in. Make sure you are in the field for which you want help before pressing <F1>. If you press <F1> again, you can also see a list of AmortizeIT! features. For example, imagine you want to make an extra payment that is applied to the principal of a loan, but you don't know how to go about it. The solution is simple. Press <F1> twice to get to the help index. Highlight "Feature List" and press the <Enter> key. Pick "Extra Payments" from the Feature List and the next help screen will walk you through the steps in entering extra payments. Lastly, the combination <Alt-F1> displays the previously called help topic. NOTE: If using a mouse, you can access the help text by pressing both the left and right mouse buttons. To exit the help screen, press the right mouse button. Now that you are aware of some basic keystrokes and concepts, we can begin the tour of two of AmortizeIT!'s routines. AMORTIZEIT! USER MANUAL page 30 EXPLORING THE LOAN CALCULATOR The operation of the Loan Calculator routine is representative of all AmortizeIT! routines: very simple and direct. You enter certain values and calculate for the unknown ones. We will use the Loan Calculator to accomplish a simple objective: calculating the payment on a simple $5,000 personal loan/credit card balance you wish to pay off in 12 months at 16 percent interest. Next, you can view the change in payment if the interest is reduced to 9 percent, such as using a home equity loan in lieu of a conventional credit card. Finally, you will see how many months it takes to pay off the loan using a comfortable payment. * To use the Loan Calculator routine 1. Start AmortizeIT! and bypass the graphic screen. Typically, you would change to the AmortizeIT! directory and type: AMORTIZE /G <Enter> NOTE: Note that the /G start-up switch forces AmortizeIT! to bypass the opening graphic title screen (registered users only). 2. Select {Loan Calculator} from the main menu. You can use your mouse to double-click on this choice, or press the letter "L" to start the Loan Calculator. Otherwise, highlight the name (it already is since it is the first choice from the main menu) and press <Enter>. The Loan Calculator appears. 3. Enter a loan amount of $5,000. You do not enter the comma or dollar symbol. Simply type: "5000." The program will automatically fill in the commas. 4. Enter 12 as the total periods of the loan. Use the <Right Arrow>, <Tab> or <Enter> key to move to the Total Periods field (the second row). Enter the number of loan periods, such as "12" for a 12-month loan. 5. Enter 16 percent as your annual interest rate. For a personal loan or credit card balance, imagine your interest rate is 16 percent. Press the arrow keys or <Tab> or <Enter> key to move to the Annual Rate "16" as the number of points. You do not type the percentage symbol. 6. Calculate your payment. When finished entering your numbers, press <F9>, the AMORTIZEIT! USER MANUAL page 31 Calculate key, to calculate your monthly payment. The payment would be $453.65 per month. In all the AmortizeIT! routines, the Calculate key calculates the remaining value(s) that are blank or zero. 7. Change your loan interest to 9 percent. Imagine you consolidated your credit card debt to a home equity line of credit. How low would your payments be? Simply type the number "9," which overwrites the 16 percent interest and press <Tab> or <Enter>. In the Periodic Payment field, type a "0" to "zero out" the payment amount of $453.65. (This zeroing out tells AmortizeIT! to use the other values to solve for this last unknown.) Press <F9> to recalculate the loan payment. You should have a value of $437.26. NOTE: The word "Calc" appearing in the upper right-hand corner indicates that a value has changed requiring the routine to be recalculated. Press the <F9> key to recalculate using the new values. If using a mouse, click on this corner to recalculate the results. If you change the value of a multiple-choice field, such as Compounding Period, the "Calc" message won't be displayed until you leave that field. 8. Change your payment amount to $300. With a home equity loan, you can often make variable payments. Imagine you felt more comfortable paying $300 per month, instead of more than $400. At $300 per month, how many months before the balance is paid off. Enter the Periodic Payment of "300" to replace the payment of $437.26. Next, use the up arrow key to move to the Total Periods field. Type a "0" to "zero out" the number of periods. Press <F9> to recalculate the number of periods. You should have a value of almost 18 months. 9. Make any other adjustments. You can change other facets of the Loan Calculator routine, including the compounding period, payment method, and amortizing method. Change each of these and see how it affects the payment amount. NOTE: If using a mouse, you can toggle the payment period by highlighting the choice with your mouse cursor and pressing the left mouse button. 10. Press <Esc> to return to the AmortizeIT! main menu. 11. To exit AmortizeIT!, press <Q> to quit or highlight the word "Quit" and press <Enter>. NOTE: If using a mouse, double-click on the word "Quit." AMORTIZEIT! USER MANUAL page 32 EXPLORING THE AMORTIZATION SCHEDULE The Amortization Schedule routine is the "meat and potatoes" of AmortizeIT!. With it, you can get a detailed analysis of your loan, including calculating the annual percentage rate (APR), tracking property taxes and insurance payments, adjusting your interest rate if you have an adjustable rate mortgage (ARM), and more. The "Correct" Payment Pine Grove Software often gets asked questions about loan payments. Just remember: There is no such thing as a "correct" loan payment. Any payment can be deemed "correct" so long as both the lender and debtor agree to it. What is important however, is the amount of interest that is being billed for a particular period. Interest due for a period must be calculated within certain bounds as prescribed by law. The method used should be clearly stated by the lender. And the amount of interest that is being charged in any period is what the debtor should audit. After all, that is the fee being charged for borrowing the money. If the interest amount agrees but the payment amount differs, the difference between the two is being applied to principal. Since principal is owed regardless, it doesn't really matter if the difference between two payment amounts is being applied to principal. * To use the Amortization Schedule routine The Amortization Schedule is the most powerful of the AmortizeIT! routines. 1. Start AmortizeIT! and bypass the graphic screen. Typically, you would change to the AmortizeIT! directory and type: AMORTIZE /G <Enter> NOTE: Note that the /G start-up switch forces AmortizeIT! to bypass the opening graphic title screen (registered users only). 2. Select {Amortization Schedule} from the main menu. You can use your mouse to click on this choice. Otherwise, press the down arrow key to highlight the name and press <Enter>. The Amortization Schedule appears. NOTE: You may also press the highlighted capital letter of a menu AMORTIZEIT! USER MANUAL page 33 choice. For example, pressing "S" opens the Amortization Schedule routine. 3. Enter a loan amount of $100,000. You do not enter the comma or dollar symbol. Simply type: "100000." The program will automatically fill in the commas. 4. Enter 240 as the total periods of the loan. Use the <Right Arrow>, <Tab> or <Enter> key to move to the Total Periods field in the right-hand column. Enter the number of loan periods, such as 240 (20 years x 12 months). NOTE: To set a custom payment in the Amortization Schedule routine, enter all values known for the loan. For Total Periods enter a "0." When you press <F9> to calculate the amortization, you will be shown a window asking for the Payment Amount. Enter any payment amount. Press <Enter>, and an amortization schedule will be displayed. If you want to quickly see when the loan will be paid off, press for previous or <PgUp> and the last year of the loan will be displayed. For more info and an alternate method, see the "Custom Payment Option" in the reference section. 5. Enter the today's date as the origination date of the loan. Use the <Right Arrow>, <Tab> or <Enter> key to move to the Origination Date field in the left-hand column, and enter a date. The origination date is the date the monies were received. By default, the suggested date is today's. NOTE: To clear the current date, either type over the current value or press <Ctrl-Y> to clear its contents. 6. Enter next month as the date of the first payment. The Amortization Schedule enters a default date of the first day of the first month more than 30 days from today's date. For example, a loan originating on January 12, 1994, will have a recommended first payment date of March 1, 1994. If you wish to change the first payment date, use the <Right Arrow>, <Tab> or <Enter> key to move to the 1st Payment Date field in the right-hand column. Enter the date you expect the first payment to be made. For this example, change it to one month from the origination date. NOTE: If the number of the month or day of the month is less than 10, you should preface the number with a "0." Otherwise, use the <Tab> key to jump to the next subfield. For example, to enter the date January 1, 1995, you would type "010195." Otherwise, you could type "1 <Tab> 1 <Tab> 95". NOTE: When the origination date and first payment date are the same, the payment method is known as payment in advance, AMORTIZEIT! USER MANUAL page 34 since a payment was made prior to the user actually having use of the funds. Leases usually use a payment in advance method. NOTE: When the origination date and the first payment date differ, the payment is known as payment in arrears, since a payment is made after the funds were available for use. Auto loans and mortgages usually use a payments in arrears method. 7. Enter "Monthly" as the payment period. Press <Tab> or <Enter> to move to the Payment Period field. You can change the length of each period (such as weekly, quarterly, etc.). Use the <Spacebar> or <+> or <-> keys to toggle the field to "Monthly." NOTE: If using a mouse, you can toggle the compounding period by highlighting the choice with your mouse cursor and pressing the left mouse button. 8. Enter "Monthly" as the compounding period. Press <Tab> or <Enter> to move to the Compounding Period field. You can change the compounding period to daily, weekly, monthly, etc. Use the <Spacebar> or <+> or <-> keys to toggle the field to "Monthly." Most loans are compounded the same as their payment period. For example, a home mortgage is compounded monthly and paid back through monthly payments. NOTE: When the payment period and compounding period are equal, there is actually no compounding and the loan is known as a simple interest loan. NOTE: Canadians typically make monthly payments with semiannual compounding. The optional AmortizeIT! Setup Program will allow you to set Canadian as the default method. 9. Enter 1 percent as your number of points. Press the arrow keys or <Tab> or <Enter> key to move to the Points field. Often, a mortgage loan may require a point or two. A point is a percentage of the loan you must pay up front for the privilege of acquiring a lower-interest loan. For this example, we'll use 1 percent. Enter "1" as the number of points. You do not type the percentage symbol. 10. Select "Normal" as the amortizing method. Press the <Tab> or <Enter> key or use the arrow keys to move to the Amortizing Method field. There are several ways a loan can be amortized, or calculated. AmortizeIT! supports six amortization methods: * Normal AMORTIZEIT! USER MANUAL page 35 * Rule of 78's * U.S. Rule * Fixed Principal * Interest Only * Canadian Use the <Spacebar> or <+> or <-> keys to toggle the amortizing method to "Normal." If using a mouse, you can toggle the amortizing method by highlighting the choice with your mouse cursor and pressing the left mouse button. NOTE: See the reference section for a detailed description of each amortizing method. NOTE: For Canadian loans, which are paid monthly and compounded semiannually, press the <Spacebar> until {Canadian} is displayed. When the loan is calculated, payment period and compounding period will be changed to these values. 11. Select "Ordinary" as your rate basis. Press the <Tab> or <Enter> key or use the arrow keys to move to the Rate Basis field. The rate basis is the percentage of annual interest applied to the loan for any period. You can select from one of three rate bases: * Ordinary * Exact/360 * Exact/365 Leave the rate basis to the default of "Ordinary." All periods are assumed to be of equal length for interest calculations. (For example all months have 30 days under this method.) Years are assumed to be 360 days in length. The remaining two rate bases use an exact day technique to calculate the interest. The percentage of interest due is either the exact number of days in the period divided by 360 or 365. 12. Enter an annual interest rate of 8 percent. Press the <Tab> or <Enter> key or use the arrow keys to move to the Annual Rate field. Enter an interest rate of 8 percent. You do not type the percentage symbol. 13. Calculate your payments. When all finished entering your numbers, periods, methods, etc., press <F9>. This key calculates the loan using your entered numbers. AmortizeIT! displays a table showing the payment, principal and interest for the first year of the loan. The yearly totals and running totals are displayed at the bottom of the screen. AMORTIZEIT! USER MANUAL page 36 14. Change your loan interest to 10 percent. Press the "R" (Repeat) key to return to the last field you were on (the mortgage interest). Simply type the number "10," which overwrites the 8 percent interest. Press <F9> to recalculate the loan. NOTE: The word "Calc" appearing in the upper right-hand corner indicates that a value has changed requiring the routine to be recalculated. Press the <F9> key to recalculate using the new values. If using a mouse, click on this corner to recalculate the results. If you change the value of a multiple-choice field, such as Compounding Period, the "Calc" message won't be displayed until you leave that field. NOTE: If you don't change any of the AmortizeIT! values, you can simply press "D" to re-display the amortization results. However, if you change any values, you naturally must recalculate the results using <F9>. 15. Change the mortgage amount to $150,000. Imagine you need a larger loan. Press the "R" key to return to the data entry screen. Press <Ctrl-PgUp> to jump to the Amount of Loan field. Enter "150000" as your loan amount and press <F9> to recalculate the loan. 16. View the total interest and payments. While viewing the first year of the table of monthly interest and principal payments, press the <PgUp> or key. You are rolled up to the last year of the loan. Press the <PgDn> or <N> key to see the first year again. Press <PgDn> to see the second, third and subsequent years. 17. View the amortization for the year 1999. While viewing the amortization, press the <A> key. Enter the year "1999" and press <Enter>. 18. Print that year's amortization numbers. Press <F3> to quickly print whatever is on the screen to your printer. If using a laser printer, you may have to press <F5> to send a form feed (eject page) command to your printer to see the page. Use <F4> repeatedly to add blank lines between printings. The printed schedule will print each year's amortization schedule. To print a complete or partial schedule, select {Print} from the local menu. NOTE: The Quick Print feature is handy to use when you want to compare two different loans. To do this, enter the first loan's details, calculate the results and press <PgUp> to display the totals for the last year of the loan. Press <F3> to Quick Print the last year's totals. Press <F4> AMORTIZEIT! USER MANUAL page 37 twice to add some blank lines at the end of the printout. Press <R> to repeat and enter the details for the second loan. Once again, calculate the new loan results, and press <PgUp> to display the last year's results. Press the <F3> Quick Print key again. Press <F5> to eject the page. You now have a comparison of two loans on a single page along with the initial values of the loan. 19. Change the date of the loan to the 15th of the month. Use the tab or arrow keys to move to the Origination Date field. Press <Shift-Tab> to move the cursor under the day of the month subfield. Enter the number "15." To change the month, press <Shift-Tab> again and change that. To clear the entire date and start from scratch, press <Ctrl-Y>. NOTE: If you ever need to restore the values of a field, press <Ctrl-R> before you leave that field. The original values are restored. 20. Save your amortization to a dBase (.DBF) file. When finished analyzing a loan, you can save it to a unique file name. Amortization files are saved in the popular dBase file format. You then can use one of the commercially available dBase report writers to customize reports and amortization schedules. You also can later retrieve the stored amortization data. Press <F10> to display the Amortization Schedule's local menu. The local menu provides additional options. Using this menu, you can enter miscellaneous fees in addition to principal and interest, calculate APR interest rate and much more. With the word {File} highlighted, press <Enter> or click on it using your mouse. Select {Save} and press <Enter>. Enter a file name, including the path, such as: C:\LOANS\THOMPSON <Enter> If you don't enter a path name, your file will be placed in the AmortizeIT! directory (typically C:\AMORT20). You later can use the local menu to delete and rename the stored files. If you do not save your amortization, you will be asked if you want to as you try to leave the Amortization Schedule. NOTE: The AmortizeIT! 2.1 data file must have a .DBF extension. AmortizeIT! 2.1 files are not compatible with earlier versions of AmortizeIT!. NOTE: See Appendix G for documentation on the file structure of the AmortizeIT! 2.1 file. 21. View your loan summary. AMORTIZEIT! USER MANUAL page 38 AmortizeIT! will summarize many aspects of your loan. You can determine the total interest, total principal and, if applicable, the total extra payments paid to any particular period. The summary feature will also calculate the interest saved as the result of the extra payments, calculate the income taxes saved due to the interest deduction and calculate the future value of the extra payments so you will know the foregone opportunity if you decide to make extra principal payments rather than invest the monies. There are many other calculations performed in the summary window. We suggest that you take the time to become acquainted with them. To view the summary window, press <F10> to display the local menu. Select {Calc} or press "C" to open the Calc menu. Next, select {Summary}. For now, leave the period set to the default of 240 since we want to know the "bottom line" cost of the loan. You may optionally enter a tax bracket and discount rate. In this example, let's assume we can make 10% on our money and that our tax bracket is 33%. Press <F9> to calculate. Press <F3> to do a Quick Print of this window. NOTE: Note that you can enter an exact date instead of the period number through which you want the loan summarized. When you enter a date rather than a period number, the remaining balance will be calculated to that date. That is, the remaining balance will be the principal balance as of the last payment plus the accrued interest for the additional days. If you select {prInt} from the local menu and then select {Summary}, a loan summary will be printed to the default printer. The summary that is generated this way (through the {prInt} option rather than through the {Calc} option) will have even more details about the loan that what will be visible on the screen. 22. View the APR (annual percentage rate) Disclosure Statement. The Federal Truth in Lending Act requires that the consumer (debtor) receive an APR Disclosure Statement for many loans. AmortizeIT! will prepare a disclosure statement that conforms with Regulation 'Z' of the Truth in Lending Act. To print a disclosure statement that is ready for signing, press <F10> to display the local menu. Select {prInt} or press "I" to open the print menu. Next, select {APR}. You will then see the "APR Disclosure Statement Options" window. Fill in the lender's and borrower's names. Set the remaining options to conform with the conditions of the loan. AMORTIZEIT! USER MANUAL page 39 For example, if this is a variable rate loan and if there is a prepayment penalty, change the appropriate values from AmortizeIT!'s default of "N" to "Y". Note, that for late fees, you can enter either an absolute dollar amount or the percentage rate of the remaining principal balance that will be charged. You should not enter both. When all values have been set, press <F9> to print the disclosure statement to the default printer. (If you change your mind, you can press <Esc> to return back to the menu.) If you need to know the details behind the APR, or if you simply want to calculate an APR without going to the trouble of printing a disclosure statement, then you can select {Calc}, {APR} from the local menu. You can also print the results of this calculation by pressing <F3> for the Quick Print feature. Note that this DOES NOT print an acceptable disclosure statement. 23. Enter an extra payment. You can enter an extra, unscheduled payment and use the Amortization Schedule routine to track it. For example, you may want to put your $1,000 Christmas bonus towards your loan. To do this, press <F10> and then select {Payments} or press "P" to open the Payments menu. Next, select {Extra} and then {Periodic Adjust}. Next, use the cursor keys or <Tab> key to move to the desired period. Enter the amount of the extra payment. If you want to make the same extra payment in a number of consecutive periods, press <F10> for a copy window. Enter the amount of this extra payment and the first and last period that will receive the extra payment. Press <F9> and AmortizeIT! will copy the extra payment across all periods. NOTE: If you want to just make one extra payment a year, you should select {Annual adjust} from the {Extra} payment menu. This will tell the copy feature to copy the payment just once a year. Also, if you use the copy feature after selecting {Annual adjust}, you can still copy for any period to any period. You are not restricted to those periods displayed. Press <Esc> to return to the Amortization Schedule. Press <F9> to recalculate your loan. You will see the effect of the extra payment(s). 24. Display results by due date or actual payment date. You have two different display options, either display (or print) by payment due date or actual payment date. This difference is important. AMORTIZEIT! USER MANUAL page 40 Suppose you have a loan with monthly payments due on the first of each month. If you were to pay the payment that is due on January 1st on December 27th, you will have paid 13 payments in the year. Hence, you will have paid more interest in the year than if you paid just the 12 payments. Since interest is usually tax deductible, you'll want to take the deduction for the interest in the year it was paid. If you display or print the schedule by actual payment date, AmortizeIT! will calculate the true interest paid in the year and report on it in the "YTD TOTALS." To change the display (and printing) accordingly, press <F10> to access the local menu and then select {Display}. Finally, select {Payment date} or {Due date}. NOTE: You can set actual payment dates from the local menu. Select {Payments}, {Regular} and {Periodic Adjust}. Change the payment dates accordingly. 25. Set your calculation options. Besides the standard loan variables such as loan amount, term and interest rate, there are a number of other factors that affect the way a payment schedule is calculated. From the local menu, select {opTions}. You will then see the Calculation Options window with many different options you can customize. For example, you may wish to have real estate tax payments added to the regular payment. To do this, you have to enter the amount of the tax payment (select {Advances/fees} then {Taxes} from the local menu) and then set the Displayed Payment Increased by Taxes to "YES". NOTE: If AmortizeIT! does not give you the results that you expect, try changing the setting for some of these options. This is significant, because changing how points are handled, for example, will change the periodic payment amount. 26. Prepare for another loan (zeroing out extra payments). Suppose you want to prepare a schedule for another loan. In a previous step, we entered three extra payments of $1,000 each. If we simply enter the parameters for a new loan, these extra payments would affect our results. To easily clear the extra payments, press <F10> to display the local menu if it is not already displayed. Pick {Payments} and then select {Extra} and {Cancel}. Enter a "Y" and press <Enter> if you wish to reset all of the extra payment fields to "0". You would use a similar technique to clear any real estate AMORTIZEIT! USER MANUAL page 41 taxes, miscellaneous fees, late fees or loan advances that you might have entered. 27. Enter a new loan with a custom payment. To set up a new loan, move to the Amount of Loan field. If a schedule is displayed, press <R> to repeat. This time, we want to borrow $149,000, so enter "149000". Press <Enter> or <Tab> to move to the Total Periods field. Since we want to pay a specific dollar amount each month we cannot be sure exactly when the loan will be paid off, therefore enter "0" for total periods. Let's assume that all of the other parameters for the loan are the same as those used for the previous scenario. Press <F9> to calculate. A window will pop up prompting you for your custom payment. Enter "1500" and press <Enter>. AmortizeIT! will prepare a schedule with a $1,500 payment. If you press <PgUp>, you can see that the loan will be paid off with the 164th payment. (AmortizeIT! will schedule the payments up until the period where the principal balance plus the interest due is less than the custom payment that you entered. At that point, the payment will be adjusted and the loan will be paid off. NOTE: When the schedule is displayed, there is a lower case 's' next to each payment except for the last one. This indicates that the user set the payment and that AmortizeIT! did not calculate it. 28. Enter a balloon payment. To continue the illustration, suppose you wanted to pay $1,500 dollars a month but you want to pay the loan off in 12 years (144 monthly payments). Press <F10> to display the local menu. Select {Payments} or press . Then select {Balloon #}. Enter "144" and press <Enter>. Then press <Esc> twice. Now press <F9> to calculate the result and display the schedule. You will now have a loan with 143 monthly payments of $1,500 and a balloon payment of $28,642.39 in the 144th period. 29. Press <Esc> to return to the AmortizeIT! main menu. If you haven't saved your amortization to a file, you will be asked if you wish to save it. 30. Press "Q" to exit AmortizeIT! or press the <End> key to jump to the last menu choice {Quit} and press <Enter> to quit and return to the operating system. NOTE: For information on accelerating a loan (paying it off more quickly), see the following sections in the AmortizeIT! AMORTIZEIT! USER MANUAL page 42 reference that follows: * Accelerated Biweekly * Prepay Next Period's Principal * Random Prepay * Regular Prepaid There's More to Learn This tutorial reviews only some of the features of the Amortization Schedule routine. AmortizeIT! also supports: * Interest-only payments. * Accrued interest. * Negative amortization. * Fixed principal. * ARMs (adjustable rate mortgages). * Multiple advance loans. See the reference section for details. AMORTIZEIT! USER MANUAL page 43 AmortizeIT! REFERENCE This section of the manual looks at the various features and options offered throughout the AmortizeIT! routines. These include: * Accelerated Biweekly * Accrued Rates * APR Detail Screen * Balloon Schedules * Calendar Year Totals * Canadian Mortgages * Compounding Periods * Construction Loans * Custom Payment Option (2 methods) * Custom Reports * Custom Setup * Date X Days from Date * Days Between Dates * dBase File Format * Discounted Mortgage * Due Date or Payment Date Schedules * Exact Day Interest * Extra Payments * File Maintenance * Fiscal Year Totals * Fixed Principal Payment Loans * Initial Interest Only Payments * Interest Between Dates * Interest Only Loans * Interest Paid * Interest Saved * Interest for Number of Days * International Currency Support * International Date Formats * Lease * Loan Advances * Loan Totals (RUNNING TTLS) * Loan Year Totals (YTD TOTALS) * Miscellaneous Fees * Mortgage Analysis * Negative Amortizing Loans * One Time Fees * Ordinary Interest * Payment Periods * Penalties * Periodic Adjust vs. Annual Adjust * Points * Prepaid Principal Acceleration * Principal Payments * Print Skipped Periods & Proof Payment Feature * Quick Print Schedule AMORTIZEIT! USER MANUAL page 44 * Random Payments * Regulation "Z" APR Disclosure * Rule of 78's * Running Totals (RUNNING TTLS) * Short/Long First Periods * Skipped Payments * Solve for Unknown * Speed Entry * Tax Consequences * Taxes * U.S. Rule Loans * Year-End Totals (YTD TOTALS) AMORTIZEIT! USER MANUAL page 45 ACCELERATED BIWEEKLY Biweekly acceleration is a method of reducing the interest paid on a loan. The biweekly acceleration technique is unique among acceleration methods. While other acceleration methods decrease the number of payments, the biweekly acceleration actually increases the number of payment periods. The loan payment is actually based upon normal monthly payments. The regular monthly payment is divided in half and paid every other week. For example, if your normal monthly payment is $1,200 and you opt for the biweekly acceleration technique, instead of making 12 payments a year at $1,200 you will make 26 payments at $600. As you can see, this in effect, is equal to 13 monthly payments a year. (26 biweekly payments divided by 2 equals 13 "monthly" payments.) The "extra" payment is ultimately utilized to reduce the principal balance of the loan, thus saving you interest expense over the life of the mortgage. The best way to see the effect of biweekly acceleration is to do the following: Enter an example of a normal 30 year mortgage, say $100,000 for 360 periods at 8%. Press <F9> to calculate. (Note that the regular monthly payment is $733.76.) When the end of the first year is displayed, press or <PgUp> for the previous year. This will show the last period of the loan and the loan totals. Assuming your printer is on, do a Quick Print by pressing <F3>. This will print just the last year of the loan along with the loan parameters. Press <F10> now for the local menu. Select {opTions}, and change the "Biweekly Acceleration Pmts" to "Yes" by pressing the <spacebar>. Press <Esc> and <F9> again to calculate. When you press or <PgUp> to display the last period, you will see that the loan is paid off in the 23rd year, or after 592 payments of $366.88. If you are printing the example, we suggest you press <F4> twice to add two blank lines to the printout and then press <F3> to do another Quick Print. A quick comparison of the running totals under "interest" will show you your savings. NOTE: Note that the Payment Period was automatically changed to say "BiWeekly" and the "A" next to the display indicates that the "Accelerated Biweekly" option has been selected. If you want to switch back to doing normal amortization, make sure you set the biweekly acceleration option to "no" and reset the payment period to "Monthly." The optional AmortizeIT! Setup Program will allow you to set either biweekly option as the default. ACCRUED RATES AMORTIZEIT! USER MANUAL page 46 Accrued Rate is when the interest due is being calculated at one interest rate, but being collected at a lower rate. This results in accrued interest which eventually must be paid. To set an accrued rate from the Amortization Schedule routine, press <F10> for the local menu. Select {Rates}, {Accrued Rate}, either {Annual Adjust} or {Periodic Adjust} and enter the accrued rate for the appropriate period. The accrued rate is in effect only for the specific period that it is entered if you selected {Periodic Adjust} or for the year if you selected {Annual Adjust}. If the rate is to be in effect for several consecutive periods, use the copy feature by pressing <F10>, and entering the start period and ending period. Press <F9> to copy. APR DETAIL SCREEN There are many factors that go into calculating the Annual Percentage Rate of a loan as required by Regulation "Z". The APR Detail Screen shows the values of the variables used to make APR calculations as well as some other facts about a particular loan. Also, in lieu of printing an APR disclosure, you can find out what the APR is by going to this screen. From the Amortization Schedule routine, press <F10> for the local menu. Select {Calc}, {APR}. It will take a moment or two for AmortizeIT! to calculate the APR. BALLOON SCHEDULES Payments may be calculated based upon a certain term, such as 30 years or 360 monthly payments. However, the loan may be due at the end of the 5th year. This results in a large final payment known as a "balloon". To set the balloon period, from the Amortization Schedule routine, press <F10> for the local menu, select {Payments}, {Balloon #}. Enter the period number that the balloon is due. In the above example, that would be period 60. When the schedule is displayed, it will stop after period 60. CALENDAR YEAR TOTALS Annual and running totals may be calculated through the end of a Calendar Year so that one can see, for tax purposes, how much interest was paid in a given Calendar Year. Totals may be also calculated based upon a fiscal year ending any month, or based upon the anniversary of the loan. To set the display option, from the Amortization Schedule AMORTIZEIT! USER MANUAL page 47 routine, press <F10> for the local menu. Select {Display} then select either {Calendar Year}; {Fiscal Year} (ending month); or {Loan Year}. NOTE: The optional AmortizeIT! Setup Program will allow you to set any default for this option. CANADIAN MORTGAGES Canadians typically make monthly payments with semiannual compounding. This option can be selected whenever the cursor is on the Amortization Method field. Press the <Space Bar> until {Canadian} is displayed. NOTE: The optional AmortizeIT! Setup Program will allow you to set Canadian as the default method. COMPOUNDING PERIODS Compounding periods may be set separately from the payment period. AmortizeIT! currently supports daily, weekly, biweekly, monthly, bimonthly, quarterly, semiannual and annual compounding. The Interest Due routine supports continuous compounding and simple interest also. CONSTRUCTION LOANS With a construction loan, funds are usually advanced to the borrower over a period of time as needed. To advance money, from the Amortization Schedule routine, press <F10> for the local menu. Select {Advances/Fees}, {Advances}, {Add}. Key in the date of the advance and the amount. If a new payment is to be calculated, set the New Pmt flag to "Y." NOTE: Note that advances can be made on any date within the current period. For example, if the loan payments are due on the first of each month and the current due date is April 1, 1993 then a loan advance may occur on March 2, 1993 through April 1, 1993. CUSTOM PAYMENT OPTION A loan may be amortized using any payment that is agreed to by both the creditor and debtor. (If the payment is less than the interest for the period, the loan will theoretically never be paid off. Or there will be a balloon due at some point.) Two methods may be used for setting a custom payment amount: Method One AMORTIZEIT! USER MANUAL page 48 To set a custom payment in the Amortization Schedule routine, enter all values known for the loan. For Total Periods enter a "0." Press <F9> to calculate, and you will be shown a window asking for the Payment Amount. Enter any payment amount. Press <Enter>, and an amortization schedule will be displayed. If you want to quickly see when the loan will be paid off, press for previous or <PgUp> and the last year of the loan will be displayed. Method Two From the Amortization Schedule routine, press <F10> for the local menu. Select {Payments}, {Regular}, either {Annual adjust} or {Periodic adjust}. Enter the custom payment. Use the copy feature (press <F10>) to duplicate payments. This method has the advantage of allowing you to change the custom payment. You can also enter a "0" for skipped payments. CUSTOM REPORTS All calculated data from the Amortization Schedule routine can be saved in a dBase-compatible (.DBF) file. This gives you easy access to the data so you can use one of the commercially available dBase report writers to customize reports and amortization schedules. Pine Grove Software plans to distribute several reports in the future. We project we will have reports that will show: * Running interest and principal totals * Tax, interest and/or penalty payments as a distinct item * Tax benefits of a mortgage We also plan to provide custom schedules and statements as a service for our business customers. Please contact us for a quote. CUSTOM SETUP SLVSETUP.EXE is an optional program that will allow you to change the program's default settings. You may change the screen colors or make more time-saving changes by changing calculation defaults or printer ports. If you need to enter a lot of loans at one interest rate, you can even set a default nominal rate. DATE X DAYS FROM DATE From the Interest Due routine, enter the Start Date and then press <Enter> twice. Enter the Number of Days, press <Enter> again, and the Ending Date will be the number of days that you entered from the Start Date. AMORTIZEIT! USER MANUAL page 49 DAYS BETWEEN DATES From the Interest Due routine, enter the Start Date, press <Enter> and enter a second date (Ending Date). The Number of Days between the two date will instantly be calculated. DBASE FILE FORMAT All data files are saved in a dBase format (.DBF). This open file format gives you the ability to access the result of calculations from other programs such as Lotus 1-2-3 or R&R Report Writer. DISCOUNTED MORTGAGE The discount value of the future stream of loan payments may be calculated in the loan summary window. If the loan is summarized through period 48 and it is a 96-period loan, the discount value of the remaining 48 periods is calculated before any extra payments. DUE DATE OR PAYMENT DATE SCHEDULES Amortization schedules may be displayed based upon either the payment due date or the actual payment date. This can be useful for showing totals ACTUALLY paid in a given year, for this affects the reportable interest paid. For example, assume you have a loan with monthly payments due on the first of each month. If the payment due on January 1 is actually paid on December 29, and all other payments were made on the 1st of the month for that year, there would actually have been 13 payments made in the year. This means that there were also 13 interest payments made that the IRS will want to know about! However, if in the next year the following years Jan 1 payment is NOT made in December but say on Jan 2, then there will only be 11 payments for that year. To select whether a schedule is displayed by either payment date or due date from the Amortization Schedule routine press <F10> for the local menu. Select {Display}, then pick either {Payment Date} or {Due Date}. NOTE: The optional AmortizeIT! Setup Program will allow you to set any default for this option. EXACT DAY INTEREST The rate basis may be either ordinary interest (all periods are assumed to be of the same length) or they may be exact day interest (the actual number of days in the period are divided by either 360 or 365). Exact Days over 360 will usually result in a AMORTIZEIT! USER MANUAL page 50 greater amount of interest being due. EXTRA PAYMENTS Besides the regular periodic payment, the borrower may wish to make an extra payment to reduce the principal loan balance. This will save on future interest payments. To make an extra payment, from the Amortization Schedule routine press <F10> for the local menu. Select {Payments}, {Extra} then select either {Annual Adjust} or {Periodic adjust}. Enter the extra payment. The annual adjust choice has the advantage of allowing you to quickly copy an extra payment that is to be made just once a year. This may occur if one wants to make an extra payment with year end bonus money or tax refund money. FILE MAINTENANCE From the Amortization Schedule routine, press <F10> select {File} to change directories, delete, rename, save or load a file. When being prompted for a file name, you may enter any valid DOS wild card character (for example: *.DBF), press <Enter> and AmortizeIT! will display a file listing that you may select from. Directories are prefaced by a "\", while files are shown in yellow. Use the up/down/left/right arrow keys to highlight the directory or file you want. The file "..\" indicates that directories exist above the current directory. If you highlight this choice and press <Enter>, you can move to those directories above the current one. NOTE: If more than one screen of files or directories are displayed, you can use the <PgDn> or <PgUp> keys to move to the next or previous screen, respectively. FISCAL YEAR TOTALS Annual and running totals may be calculated through the end of a Fiscal Year so that one can see, for tax purposes, how much interest was paid in a given Fiscal Year. (Totals may be also calculated based upon a calendar year or based upon the anniversary of the loan.) To set the display option, from the Amortization Schedule routine, press <F10> for the local menu. Select {Display} then select either {Calendar Year}; {Fiscal Year} and month the fiscal year ends; or {Loan Year}. NOTE: The optional AmortizeIT! Setup Program will allow you to set any default for this option. FIXED PRINCIPAL PAYMENT LOANS Normally, a loan is paid back in level payments. (We call this a AMORTIZEIT! USER MANUAL page 51 "normal loan.") That is, the payment amount remains constant. However, it is possible for the payment to be a level PRINCIPAL amount. Fixed principal loans calculate the payment by dividing the total loan amount by the number of periods and adding the interest due for the period. The result is that the payment decreases as the loan balance is paid down because less interest is due for the period. The net result is that while the initial payments are higher, the total amount of interest paid is less than under level payment type loans. INITIAL INTEREST ONLY PAYMENTS Some loans are multiphase. Multiphase loans usually have a number of initial periods where only the interest due is paid. From the local menu, select {Payments} {Int Only} and enter the number of periods where only interest will be paid. INTEREST BETWEEN DATES Need to know how much interest you will earn (or pay) between any two dates? The Interest Due routine will calculate this for you using any one of 10 compounding methods. INTEREST ONLY LOANS With some loans, the borrower is obligated to make payments that only cover the interest due for the period. The final payment is a balloon of all of the principal and the interest for the final period. From the main amortization schedule set {interest only} for amortization method. INTEREST PAID The loan summary window/report and the Accelerated Payment routine will calculate the interest paid on a loan. Also, the amortization schedule will show a total for the year and a running total of interest paid. INTEREST SAVED The loan summary window/report and the Accelerated Payment routine will calculate the interest saved as the result of making extra loan payments. To analyze the effect of payment acceleration, first enter your original number of periods, loan amount and interest rate. Do not yet enter the extra amount paid or at what period that occurs. After calculating the interest paid over the original length of the loan, enter the extra amount to be paid and at what payment period the extra amounts will be paid. Then press <F9> to calculate the new results. You now compare your savings. AMORTIZEIT! USER MANUAL page 52 INTEREST FOR NUMBER OF DAYS Need to know how much interest you will earn (or pay) for a specific number of days? The Interest Due routine will calculate this for you using any one of 10 compounding methods. Enter any start date and then the number of days. This is handy to know how much you will earn on a 90 day CD for example. INTERNATIONAL CURRENCY SUPPORT While the program's main menu is displayed, press <F10> for the global options menu. Select {Currency} and pick the currency format that you need. AmortizeIT! will allow you to pick from 18 different country conventions. Additionally, AmortizeIT! will look at DOS's country code setting to automatically set what it believes to be your local convention. INTERNATIONAL DATE FORMATS While the program's main menu is displayed, press <F10> for the global options menu. Select {Date} and pick the date display convention that you need. Also, AmortizeIT! will look at DOS's country code setting to automatically set what it believes to be your local convention. LEASE When monies are advanced for a lease, the first payment is due on the day the monies are advanced. From the Amortization Schedule routine, set the first Payment Date equal to the Origination date of the loan. LOAN ADVANCES Some loans do not advance the entire principal amount on the origination date of the loan. For example, construction loans will make periodic advances as construction progresses. To advance money, from the Amortization Schedule routine, press <F10> for the local menu. Select {Advances/Fees}, {Advances}, {Add}. Key in the date of the advance and the amount. If a new payment is to be calculated, set the New Pmt flag to "Y." NOTE: Note that advances can be made on any date within the current period. For example, if the loan payments are due on the first of each month and the current due date is April 1, 1993 then a loan advance may occur on March 2, 1993 through April 1, 1993. AMORTIZEIT! USER MANUAL page 53 LOAN TOTALS (RUNNING TTLS) The amortization schedule tracks payment, interest and principal totals for the year as well as running totals. Annual totals can be for a fiscal year, loan year or a calendar year. Calendar or fiscal year totals are handy to know the total interest expenses for a tax year. The loan summary window/report will calculate these totals, as well as others, to any period or any date. LOAN YEAR TOTALS (YTD TOTALS) Annual and running totals may be calculated through the end of a Loan Year so that one can see how much interest was paid in a given loan year. (Totals may be also calculated based upon a calendar year or fiscal year.) To set the display option, from the Amortization Schedule routine, press <F10> for the local menu. Select {Display} then select either {Calendar Year}; {Fiscal Year} & {(ending month)}; or {Loan Year}. NOTE: The optional AmortizeIT! Setup Program will allow you to set any default for this option. MISCELLANEOUS FEES A miscellaneous fee might be required property or mortgage insurance. MORTGAGE ANALYSIS From the amortization schedule press <F10> for the local menu. Select either {Calc} or {Print} then select {Summary}. The mortgage analysis will calculate many totals and the discount value of the mortgage. NOTE that the analysis done through the {Print} menu option will provide more details than the summary window. When analyzing the effect of loan acceleration, you must enter the period through which you want to summarize before seeing the effects of extra payments or acceleration. For example, if you want to see what effect biweekly acceleration has on a traditional 30-year mortgage, you would summarize the loan through period 360. NEGATIVE AMORTIZING LOANS Negative amortization will occur either when there is an accrued AMORTIZEIT! USER MANUAL page 54 rate or when a custom payment does not equal the interest due for the payment period. ONE TIME FEES When applying for a loan, there are usually a number of one time fees associated with the loan application. These fees affect the APR per Regulation "Z" of the Truth-In-Lending Act. To enter One Time Fees, total them all up. Next, from the Amortization Schedule routine press <F10> for the local menu. Select {Advances/Fees}, {One Time Fees}. Enter the total of the fees and press <Enter>. ORDINARY INTEREST AmortizeIT! supports three interest rate basis for calculating interest due in a period. These three basis are: ordinary interest (360/360); exact days over 360; or exact days over 365. Ordinary interest assumes that every period has the same number of days in it. Exact day interest, calculates interest based upon the exact number of days in the period. PAYMENT PERIODS AmortizeIT! supports weekly, biweekly, monthly, bimonthly, quarterly, semiannual and annual payment periods. The payment and compounding period may be selected independently. PENALTIES Penalty fees may be tracked. From the local menu, select {Advances/Fees}, {Late Fees} and {Add}. Enter the dollar penalty for the period. The amortization schedule will display the payment with or without the late fee included. See {options} from the local menu to set whether the late fee is included in the payment amount. PERIODIC ADJUST VS. ANNUAL ADJUST Annual Adjust and Periodic Adjust are tools in the Amortization Schedule to change the interest rate and/or payment amount yearly or for several periods, respectively. Such adjustments occur when you wish to, for example, make an extra loan payment in every December when you might receive a year end bonus. For interest rates, annual adjust will allow you to change an interest rate once and that change will become effective for the entire year. For extra payments, annual adjust will change a payment only on the payment specified. When using the copy feature, the adjustment will occur on the anniversary of the AMORTIZEIT! USER MANUAL page 55 initial period that is selected. All you need to do is to use the copy feature and AmortizeIT! will know to apply the extra payment only in December even though you specified to copy from period 10 to period 360. Periodic Adjust (as opposed to Annual Adjust) will allow you to make either a rate or payment adjustment at ANY period. To adjust periodic or annual interest rates, select {Rates} and {Paid rate} from the local menu. To adjust periodic or annual extra payments, select {Payments} and {Extra} from the local menu. To adjust periodic or annual regular payments , select {Payments} and {Regular}. POINTS Lenders may charge "points" on a loan. The points is a percentage of loan advance. Enter the points charged on the main amortization screen or the refinance routine screen. PREPAID PRINCIPAL ACCELERATION The prepaid principal acceleration method is an increasingly popular way to reduce the amount of interest paid on a loan. At the time you make a regular payment, you also prepay the next period's principal, thus saving an interest payment. The theory is that the earlier you make extra principal payments, the more interest you save. This method has the advantage that the extra payments start out very small since very little of the first payments are applied toward principal reduction. To see the effects of this technique, from the Amortization Schedule routine, press <F10> for the local menu. Select {opTions}, and set Prepaid Principal Acceleration to "YES". Press <Esc> and press <F9> to calculate. You will see that a loan will be paid off in a little over 1/2 the normal time using this method. PRINCIPAL PAYMENTS Random, extra principal payments may be made on a loan. From the amortization's schedule's local menu select {Payments}, {Extra}, {Periodic Adjust} or {Annual Adjust}. NOTE: Use annual adjust if you want to make one extra payment a year on a regular basis. There are fewer fields and the screen is easier to use. PRINT SKIPPED PERIODS & PROOF PAYMENT FEATURE Payment amounts are normally calculated using a generally accepted formula. However, sometimes (usually when exact day AMORTIZEIT! USER MANUAL page 56 interest is being used) this is not the "best" payment amount. From the Amortization Schedule's local menu select {Payment} {Proof}. When {Proof} is checked, AmortizeIT! will verify that the calculated payment is the lowest payment possible that will result in the last payment being less than the previous payment. PRINTING PROBLEMS See "Appendix A: Command Line Options." QUICK PRINT SCHEDULE At times you may just want to print one year of an amortization schedule along with the original loan parameters. Enter the criteria for a loan, press <F9> to calculate. Press <N>, <PgDn>, , <PgUp> or <A> to display the year that you want to print. Press <F3> to print. You can quickly print the last year of a loan, showing totals for the entire loan period, by simply pressing or <PgUp> when the first year of a loan is displayed. or <PgUp> displays the previous year of a loan, or in this case, since the first year of a loan is displayed pressing or <PgUp> causes the program to "wrap around" and display the last year of the loan. RANDOM PAYMENTS From time to time, the debtor may wish to make random extra principal payments to reduce the total indebtedness while at the same time saving interest expense. To make random payments, from the Amortization Schedule routine press <F10> for the local menu. Select {Payments}, {Extra} then select either {Annual Adjust} or {Periodic adjust}. Enter the random payment. The annual adjust choice has the advantage of allowing you to quickly copy an extra payment that is to be made just once a year. This may occur if one wants to make an extra payment with year end bonus money or tax refund money. REGULATION "Z" APR DISCLOSURE Regulation "Z" is issued by the Board of Governors of the Federal Reserve System to implement the federal Truth in Lending and Fair Credit Billing Acts. These Acts require that consumers be given a disclosure statement that, among other things, shall "disclose the...Amount Financed,...Finance Charge" and the "Annual percentage rate". AmortizeIT! will print such a disclosure statement. From the Amortization Schedule routine, press <F10> for the local menu. Select {prInt}, {APR}. The next screen allows you to set various AMORTIZEIT! USER MANUAL page 57 options for a particular loan. Once those options are set, press <F9> to print the disclosure statement. NOTE: To obtain an accurate disclosure, you must previously have entered any points and one time fees associated with applying for the loan. RULES OF 78'S Rule of 78's is an amortization method. While on any amortization field press the space bar or click on the field with a mouse until Rule of 78's is selected. RUNNING TOTALS (RUNNING TTLS) The amortization schedule tracks running totals for payments, interest and principal from the origination date. Also, you can get the total through any period or date through the loan summary option. Finally, you can use a third-party utility such as PopDBF to view the AmortizeIT! data file. The data file stores the running total through any period. SHORT/LONG FIRST PERIODS Typically, mortgages payments are due the first of the month. However, the odds are that a closing will not be on the first of the month. Consequently, the initial period of a loan will be either shorter or longer than all of the other periods. To allow for short or long first periods, while in the Amortization Schedule routine, the user is prompted for both the origination date of the loan (the day the funds are advanced) and the first payment date. SKIPPED PAYMENTS Loans can be negotiated so that certain payments may be skipped. Or the debtor might simply miss a payment. To skip a payment, from the Amortization Schedule routine, press <F10> for the local menu. Select {Payments}, {Regular}, and then either {Annual Adjust} or {Periodic adjust}. Enter a "0" for each period that the payment is to be skipped. If you want AmortizeIT! to recalculate the payment so that there will not be a balloon due as the result of the skipped payment(s) press <Esc> when done and then press <F9> again to recalculate the schedule. After each skipped payment, there will be a new payment amount and there will not be a balloon at the end of the loan. On the other hand, if you still want to maintain a single payment amount, you need to do the following: After each "0" payment that AMORTIZEIT! USER MANUAL page 58 is entered, you need to press <F10> and copy the regular payment from the next period to the next skipped period or until the last period. The copy step is necessary to specifically tell AmortizeIT! that you do not want the payment amount to change and that you will accept a final balloon payment caused by the skipped payment. NOTE: In this version of AmortizeIT!, it is not possible for the program to calculate one "level" payment with no resulting balloon allowing for skipped payments. The user can arrive at a level payment using a trial and error technique by setting whatever payment is desired in the periods where a payment is to be paid. AmortizeIT! will still calculate the interest due for all periods and apply the payment you have selected. SOLVE FOR UNKNOWN There are 4 primary variables for a loan. They are Amount Borrowed, the Nominal Interest Rate, the Term and the Payment Amount. If you provide AmortizeIT! with any of these three, it will solve for the unknown value. From the Loan Calculator routine, enter "0" for the unknown value and press <F9>. SPEED ENTRY It is possible, using the optional Setup Program, to prepare an amortization schedule by only providing two numbers, the Amount of the Loan and the Number of Payments. Use the optional Setup Program to set all program defaults to match the parameters that you require. Also, enter the current interest rate. Usually lending institutions will be able to quote a rate for at least a few days and since a default rate can be set very quickly, this is a practical thing to do. Once the defaults are set, start AmortizeIT!. Select {Amortization Schedule}, key in a loan amount, press <Enter> and enter the Number of Periods. Press <F9> to calculate the schedule. Also, note that with AmortizeIT!, whenever you display an amortization schedule, the original loan parameters are always visible regardless of the year being displayed. TAX CONSEQUENCES Presently, mortgage interest is usually tax deductible. AmortizeIT! will calculate the total income taxes saved due to mortgage interest paid through any selected payment period. To see the tax benefit of a mortgage, from the Amortization Schedule AMORTIZEIT! USER MANUAL page 59 routine press <F10> for the local menu. Select {Calc}, {Summary}. Enter a period number or date and your tax bracket. Press <F9> to calculate. The difference between Interest BEFORE extra payments and the Net Interest Paid AFTER taxes is the tax consequences of the mortgage. TAXES Often the lender will want to hold real estate taxes in escrow. AmortizeIT! will allow you to track taxes and to optionally add the taxes to the regular payment. From the Amortization Schedule routine, press <F10> for the local menu. Select {Advances/Fees}, {Taxes}, {Add}. Key in the tax amount for each period. You can use the copy feature, <F10>, to copy the same amount across any number of consecutive periods. Press <Esc> to return to the main screen. If you want the tax payment to be added to the regular payment press <F10> for the local menu. Select {opTions}. Set "Increase by Taxes" to "YES". Press <Esc>. Press <F9> and the payment amount will include the taxes paid. Note, obviously if this option is set to "YES" that the Principal and Interest amounts will, when added together, be less than the displayed payment amount. U.S. RULE LOANS If a loan payment is not large enough to pay the interest due for the period (negative amortization), the U.S. Rule states that there cannot be any interest calculated on the unpaid interest from the previous period. If negative amortization is occurring and you want the U.S. Rule to apply, from the main Amortization Schedule screen, press <Enter> until the cursor is on the Amortization Method field. Press the <Space Bar> until the U.S. Rule is selected. NOTE: The optional AmortizeIT! Setup Program will allow you to set the U.S. Rule as the default for this option. YEAR-END TOTALS (YTD TOTALS) Year-end totals are tracked in the amortization schedule for payments, principal and interest. The "year end" may be a calendar year, fiscal year or a loan year. From the amortization schedule's local menu, select {Display} then {Calendar Year} {Fiscal Year} or {Loan Year}. If you select {Fiscal}, AmortizeIT! will ask you to pick the ending fiscal month. The primary reason you would want to know the total for a fiscal year is to know the amount of interest paid in a fiscal year for tax reporting. AMORTIZEIT! USER MANUAL page 60 APPENDIX A: COMMAND LINE OPTIONS There are some switches, or letters, you can use when starting AmortizeIT!. These switches are added after the AMORTIZE command. By typing: AMORTIZE /x <Enter> where x is the letter of the switch you want to use. What switches are available? Purpose Switch Starts AmortizeIT! in color mode /C Runs AmortizeIT! in monochrome (black and white mode) /M Bypasses the graphic title screen (registered users only) /G Displays AmortizeIT!'s current settings /D Changes printer test code, where # is a number /T# between 1 and 3, inclusive Changes parallel printer port, where # is a /P# number between 1 and 3, inclusive Displays the available AmortizeIT! switches /? Printing Problems This version of AmortizeIT! uses a different printing method than earlier versions of the program. Without being too technical, we now call BIOS routines instead of DOS routines to print. The advantage is that printing should be faster than with earlier versions. The disadvantage is, that printing may not, initially, work with all printers without altering the setup. If you cannot print, you may do one of two things: 1. Run the SLVSETUP utility, and adjust the printer test number. NOTE: See "Appendix B: Really Customizing AmortizeIT!" about this utility. 2. Pass AmortizeIT! a command line argument to change the printer test. When you start AmortizeIT!, enter: AMORTIZE /T# <Enter> where # is a number from 1 to 3. You may pick Test 1, Test 2, or Test 3. We have chosen Test 2 as the default, since that is most likely to work. You may have to make several tries at printing to see which printer test number is going to work with your hardware setup. AMORTIZEIT! USER MANUAL page 61 APPENDIX B: REALLY CUSTOMIZING AmortizeIT! Registered users of AmortizeIT! receive the separate utility SLVSETUP.EXE for customizing the program. You can use this utility to: * Change the number of lines per page. * Change the printer port. * Set a printer test code. * Change the calculation options, including default interest rates and points. * Tell AmortizeIT! whether your monitor is color or monochrome. * Customize the AmortizeIT! menu colors. * Change the way menus appear and are chosen. * Set a default data path for storing amortization tables. * To customize AmortizeIT! 1. From the AmortizeIT! directory (typically C:\AMORT20), type: SLVSETUP <Enter> 2. Select what item you wish to customize. Move the cursor to highlight the item you wish to change or press the menu choice's capitalized letter. 3. Make your choices. 4. When finished, return to the main menu and select "Save changes & quit." If you don't wish to save your changes, select "Quit setup/no save." NOTE: If using a serial printer, you will need to use the DOS MODE command to divert printing from the standard parallel port (LPT1) to the serial port (COM1 or COM2). Two lines you may need to type are: MODE COM2 BAUD=96 PARITY=N DATA=8 <Enter> MODE LPT1=COM2 <Enter> NOTE: Your serial printer manual should give you the exact settings you need. The second line is the most crucial, redirecting printing to the first parallel port (LPT1) to the second serial port (COM2). In your case, you may need to substitute COM1, depending on to which serial port your printer is connected. AMORTIZEIT! USER MANUAL page 62 APPENDIX C: FREE MEMORY AND AMORTIZING PERIODS When creating amortization schedules, AmortizeIT! uses all available memory below 640K (conventional memory). The more free memory you have, the greater the number of periods you will be able to amortize. For example, using MS-DOS 5.0 with about 618K free, we have been able to amortize loans of nearly 900 periods. When using the VIDRAM utility from Quarterdeck (included with QEMM), we have 704K of free memory, allowing us to amortize a loan with about 1150 periods. If you are running MS-DOS 5.x or MS-DOS 6.x, use the DOS MEM command to see how much free conventional memory you have. From the DOS prompt, type "MEM" and press the Enter key. The amount of memory listed next to "Largest Executable Program" is your free conventional memory. You must have about 520K free to amortize a normal 30-year loan with 360 monthly payments. AMORTIZEIT! USER MANUAL page 63 APPENDIX D: AmortizeIT! UNDER WINDOWS AmortizeIT! can work under Microsoft Windows 3.1 as a DOS application. We have included a PIF (program information file) you can use to best run AmortizeIT! under Windows. A PIF allows you to tell Windows how to work with each of your DOS software programs. If you don't create a PIF for each program, Windows will use its default DOS PIF, _DEFAULT.PIF. We've included AMORTIZE.PIF to best let you use AmortizeIT! under Windows. * To use AmortizeIT! under Microsoft Windows 3.1 1. Copy the file AMORTIZE.PIF to your \WINDOWS directory. If you have a typical installation, you would type: COPY C:\AMORT20\AMORTIZE.PIF C:\WINDOWS <Enter> 2. Copy the AmortizeIT! icons to your \WINDOWS directory. When you create a Windows icon for AmortizeIT!, you can also change the icon to one of the two included with the program. Otherwise, you will have the unattractive default DOS icon included with Windows. If you have a typical installation, you would type: COPY C:\AMORT20\*.ICO C:\WINDOWS <Enter> 3. Start Microsoft Windows. 4. Start the PIF Editor which is found in the Main group. 5. From the File menu, select Open. 6. Open the AMORTIZE.PIF file by double-clicking on it. 7. Edit PROGRAM FILENAME to include the directory that you installed AmortizeIT! into. If you used the suggested default directory, enter: C:\AMORT208. Optionally, edit the START-UP DIRECTORY to tell WINDOWS where you want to save your AmortizeIT! work files. The default directory is C:\AMORT20. 9. Select FILE and SAVE to save your changes. 10. Finally, select FILE, EXIT to leave the PIF Editor. You now have an AMORTIZE.PIF file so you can run AmortizeIT! AMORTIZEIT! USER MANUAL page 64 under Windows. You now must select an icon from which you can start AmortizeIT!. 11. Highlight a Windows group into which you want to place an AmortizeIT! icon you can choose to start the program. 12. From the Program Manager, select FILE and then NEW. 13. Press <Enter> to accept the standard choice of a Program Item. 14. In the Command Line box, enter the name AMORTIZE.PIF. 15. Select Change Icon to use either of the two included icons for AmortizeIT!. 16. Enter the name AMORT-1.ICO and select OK. 17. Select OK to save your changes. The icon for AmortizeIT! is placed in the group you were currently in. If you wish to move this icon to another group, simply drag it to its new location. 18. To start AmortizeIT! , simply double-click on the new icon. NOTE: If this is the first time you have run AmortizeIT!, you will be asked to enter your name and whether or not you see colors on your screen. After answering these questions, you will have to start AmortizeIT! again, in order for the changes to become effective.) If you ever need to edit this or any other PIF, start the PIF Editor (which is found in the Main group) and load the PIF you wish to edit. NOTE: For more information on PIF files, consult your Windows manual. AmortizeIT! for Windows? We are very much interested in what you think of the Windows environment. Do you use it? All of the time or some of the time? We are considering possibly making AmortizeIT! a Windows application. Would you like that? Considering that every company has limited resources, would it be better if we added new features to the DOS version or convert the present version to a Windows version? Let us know what you think. AMORTIZEIT! USER MANUAL page 65 APPENDIX E: NEW FEATURES IN VERSION 2.1 Version 2.1 of AmortizeIT! adds a lot of powerful features, among them are: * Easily set any custom payment amount. * Short or Long initial first period options. * Interest Basis: Ordinary, Actual/360 or Actual/365. * New Refinance Routine - compares refinancing choices. * Schedules optionally track both payment due date and actual payment date which lets interest be tallied for a year if 13 payments are made in that year. * Optional proof payment feature. * Support for 15 currencies & International Date format option. * Points & Origination Fees. * Stores data in dBase compatible files so that 3rd party reporting package can be used and data can be read by any application that can read dBase files such as Lotus 1-2-3. * Support for multiple loan advances (Construction Loans). * Maximum number of periods limited by free base (640K) memory (about 900). * Accelerated biweekly - two 1/2 monthly payments made each month. * Automatic prepaid next period principal acceleration. * Optionally show taxes, penalties and/or miscellaneous fees with payments. * Canadian Mortgages, i.e. monthly payments with semiannual compounding. * Supports any number of initial interest only payments. * Shows/prints schedule until required balloon payment. * New APR detail screen. * Prints Regulation "Z" APR Disclosure statement. * Faster BIOS printer routines with support for LPT2 & LPT3 as well as LPT1. * Mouse support. * NEW Advanced Summary Screen that tracks tax consequences of mortgage, discount value of a mortgage, the future value of extra payments & much more. * Remaining principal balance calculation on ANY date. * HyperText Help explaining how each feature is used. And... * Full support for Microsoft Windows 3.1. Comes complete with PIF file and two Window icons. AMORTIZEIT! USER MANUAL page 66 APPENDIX F: TECHNICAL SUPPORT As a smaller company, we unfortunately cannot answer every phone call immediately. If you can't reach us, please leave a message. We will call you back. Fortunately, we accept calls at our toll-free 800 number until 10 p.m. EST. Occasionally, we are even available at that number on Saturday and Sunday. U.S.A. toll-free: 800-242-9192 International: 609-730-1430 Fax: 609-730-1530 CompuServe: 72366,306 We also maintain a consulting office in NYC: 212-279-5570. If you wish to write us: Pine Grove Software 23 Flower Hill Drive, Suite 1600 Trenton, NJ 08638-1203 USA AMORTIZEIT! USER MANUAL page 67 APPENDIX G: DATA FILE SPECIFICATION The following is provided so that users can use third-party report generators (such as R&R Report Writer) to develop custom amortization schedules using the data saved in an AmortizeIT! 2.1 data file (dBASE-compatible) or so that when the data file is read into a spreadsheet program (such as Lotus 1-2-3 or Quattro Pro), the values can be identified. We are sorry, but it is beyond the scope of your technical support to answer questions on the phone about our data file structure. If you have questions, please send them to us via fax or CompuServe. We will attempt to provide you with support via one of these methods, though we reserve the right not to. Pine Grove Software will develop custom amortization schedules for interested parties. We will bill clients our normal hourly consulting rate. Please contact us for a quote. Record Size: 248 Fields: 29 FIELD_NAMETYPE WIDTH/DEC NOTES PMTNO Numeric 4 0 payment number DUEDATE Date 8 payment due date PMTDATE Date 8 actual payment date PMT Numeric 12 2 payment amount PMTSC Numeric 1 0 payment recalc indicator where: S=user set C=program calculated XPMT Numeric 12 2 extra payment PRIN Numeric 12 2 principal amount PRINSC Character 1 principal recalc indicator INT Numeric 12 2 interest amount INTSC Character 1 interest recalc indicator REMBAL Numeric 12 2 principal balance ADVANCE Numeric 12 2 loan advance amount ADVANDATE Date 8 loan advance date NEWPMTFLG Logical 1 payment recalc indicator RATEPAID Numeric 7 4 regular interest rate PIFLG Character 1 interest only indicator where: B=both P&I I=interest only payment RATEACCRUENumeric 7 4 accrued interest rate INTACCRUEDNumeric 12 2 accrued interest dollars RUNPMT Numeric 12 2 running payment total RUNXPMT Numeric 12 2 running extra payment total RUNPRIN Numeric 12 2 running principal total RUNINT Numeric 12 2 running interest total RUNACCINT Numeric 12 2 running accrued interest total FEE Numeric 12 2 fee paid AMORTIZEIT! USER MANUAL page 68 PENALTY Numeric 12 2 penalty paid TAXES Numeric 12 2 taxes paid RESERVED1 Numeric 12 2 for possible future use RESERVED2 Date 8 RESERVED3 Character 1 dBASE Data File The DBF data file will have a total of one record for each payment period plus 2. The first record will contain payment data for the initial short period. The last record in the file will contain the loan parameters. The first record will contain the following information: [Record1].PmtDate = 34027 (stamps file as an AmortizeIT! data file.) 03/01/93 (displays in dBase file) [Record1].Advance = Dollars of Prepaid Interest [Record1].Int = Dollars of Points plus Dollars of Long Period Interest [Record1].IntAccrued = Dollars of Odd Days Interest Notes [Record1].RemBal will equal the principal amount of the loan unless either Points or Long Period interest are amortized. In that case, the field will equal the initial loan amount plus the dollars of points or long period interest that is to be amortized. The values in the other fields of the first record should be self explanatory. The last record will contain the following information: [TotPer+2].RemBal = Initial Loan Amount [TotPer+2].PmtDate = Balloon Payment Number [TotPer+2].Prin = Points (percentage) [TotPer+2].RatePaid = Initial Interest Rate [TotPer+2].PmtNO = Total Periods [TotPer+2].Pmt = Payment Period where: 1=Weekly;2=BiWeekly;3=Monthly 4=BiMonthly;5=Quarterly; 6=SemiAnnually;7=Annual [TotPer+2].XPmt = Compounding Period; as Payment Period plus 8=Continuous [TotPer+2].IntAccrued = Amortizing Method where: 1=Normal;2=Rules78; 3=USRule;4=Fixed AMORTIZEIT! USER MANUAL page 69 Principal;5=Interest Only [TotPer+2].RateAccrued = Rate Basis where: 1=Ordinary;2=Actual/360 3=Actual/365 [TotPer+2].Int= prepaid interest, points & long period [TotPer+2].Fee = 1=Payment Increased Due to Miscellaneous Fees 0=Payment NOT Increased Due to Misc. Fees [TotPer+2].Penalty = 1=Payment Increased Due to Miscellaneous Penalties 0=Payment NOT Increased Due to Misc. Penalties [TotPer+2].Taxes = 1=Payment Increased Due to Miscellaneous Taxes 0=Payment NOT Increased Due to Miscellaneous Taxes [TotPer+2].RunPmt = Short Initial Period Payment where: 1=No Reduction;2=Reduce First Pmt 3=Reduce All [TotPer+2].RunXPmt = Long Initial Period Payment where: 1=Amortize Interest;2=Interest w/1st Payment 2=Interest as Prepaid [TotPer+2].RunPrin = Short Period Interest Calculation Method where: 1=Prorated;2=Simple 360;3=Simple 365 [TotPer+2].RunInt = Long Period Interest Calculation Method where: 1=Simple 360;2=Simple 365; 3=Compounded 360;4=Compounded 365[TotPer+2]. RunAccInt = Points collect where: 1=with First Payment;2=as Prepaid Interest 3=Amortized [TotPer+2].PmtSC = 1=Biweekly Acceleration 0=NOT Biweekly Acceleration [TotPer+2].PrinSC = 1=Prepaid Principal Acceleration 0=No Prepaid Acceleration [TotPer+2].IntSC = 1=ARM Loan 0=NOT Adjustable AMORTIZEIT! USER MANUAL page 70 APPENDIX H: EXPLANATION OF THE RULE OF 78'S Contributed by Morris A. Nunes, Attorney, (703) 241-4917 Outside of banking circles, the Rule of 78's is little understood, even though it is commonly applied to many consumer and business loans. For the borrower, it tends to have a pernicious effect in the nature of a hidden prepayment penalty. The borrower's disadvantage is heightened by the fact that the operation of the Rule of 78's is often referred to as a "Rebate of the Finance Charge." Any consumer who heard the word "rebate" is always tempted to say, "Where do I sign?" Not so fast! Here's how it works: The name comes from the sum of the numbers one through 12, there being 12 months in a year. Yes, that adds to 78. The theory of the Rule of 78's is that at the moment a borrower signs the Note, the borrower is immediately obligated to pay back all of the principal and ALL of the interest that will accrue in the future over the agreed term of the loan. Now, if the borrower prepays, the lender "generously" forgives some of the interest EVEN THOUGH at the time for it to accrue has not yet elapsed and so that additional interest has not been earned. That's the so-called "Rebate." Lenders argue that the uncertainty created about an early payoff entitles them to some compensation for being at the borrower's whim for payoff. In a time of falling interest rates, that argument may have more merit than when interest rates are rising as the lender gets to put the money back to work at a higher rate and earn more. In any event, the Rebate is calculated by summing the number of payments elapsed in inverse order as a denominator for the fraction in which the sum of the term is the numerator. That fraction times all interest over the life of the loan is the amount earned by the lender. Watch this example: Assume a two-year loan (so we'll assume the numbers 1 through 24) for $10,000 with interest at 12% per year. Using AmortizeIT!'s Loan Calculator, we know the monthly payment is $470.73. The "Loan Table" module's Running Totals also tells us that over the life of the loan the total amount of aggregate interest to be paid would be $1,297.65 (using a 365-day year). After the fourth month, our borrower reaps a windfall and wants to prepay the whole loan. The fraction of the total interest AMORTIZEIT! USER MANUAL page 71 earned by the lender is: (Sum 24 to 21) over (Sum 1 through Sum 24) 90/300 = 30% Now, let's compare that to the interest actually paid to date to see what the penalty will be. From running the "Loan Table" module, we found the total interest to be $1,297.65 and the interest paid after four payments is $377.61, so the penalty is: Earned Interest Per Rule: (30%) ($1,297.65) = $389.30 Interest Paid to Payoff: $377.61 Additional Interest Owed: $11.69 Maybe that doesn't look like too big a number, but it's an additional 3.1% interest. Had this been a $100,000 loan, the increased penalty works out to ten times as much, $116.84. Paying off at different times for different maturities and different interest rates produces differing penalty sizes. Two general rules of thumb can be adduced: 1. The higher the interest rate, the greater the penalty amount. 2. The earlier the prepayment in relation to the term, the greater the penalty amount. So if you're a lender, you should love using the Rule of 78's. If you're a borrower, you should try to avoid it. A caution for lenders: Some states have usury and other laws that may limit use of the Rule of 78's. The printed manual provided with the registered version of the program has a very detailed index. AMORTIZEIT! USER MANUAL page 72