I don't know how to calculate the correct number. Here's a scenario:
Original Loan Amount: $400,000
Interest Rate: 6%
Monthly Payment: $2398.20
Term: 360 months
I am also offered a competitor's scenario.
Competitor Loan Amount: $400,000
Interest Rate: 5%
Monthly Payment: $2147.29
Term: 360 months
The difference is: $2398.20 - $2147.29 = $250.90
If I apply the difference to the competitor's loan so:
Loan Amount: $400,000
Interest Rate: 5%
Monthly Payment + difference: $2398.20
Term: 360 months (shortened to 286 months because of extra payment)
What is the effective interest rate? Should it be lower than 5%?
BTW, the Competitor's loan with NO Extra Payment has total term interest of $463,352.76 but WITH extra payment the total term interest is $284,914.59
Some company's marketing material states the effective interest rate based on extra payment as lower than stated interest rate but I don't know how to calculate it.
Original Loan Amount: $400,000
Interest Rate: 6%
Monthly Payment: $2398.20
Term: 360 months
I am also offered a competitor's scenario.
Competitor Loan Amount: $400,000
Interest Rate: 5%
Monthly Payment: $2147.29
Term: 360 months
The difference is: $2398.20 - $2147.29 = $250.90
If I apply the difference to the competitor's loan so:
Loan Amount: $400,000
Interest Rate: 5%
Monthly Payment + difference: $2398.20
Term: 360 months (shortened to 286 months because of extra payment)
What is the effective interest rate? Should it be lower than 5%?
BTW, the Competitor's loan with NO Extra Payment has total term interest of $463,352.76 but WITH extra payment the total term interest is $284,914.59
Some company's marketing material states the effective interest rate based on extra payment as lower than stated interest rate but I don't know how to calculate it.