Slide 4: How the BLOC Can Be Used
Let's Look at Another Example
Let's say that you need to install new windows in your home. The cost for the windows and installation is $10,000.
You can get a home improvement loan through the window supplier to finance the cost at the following terms (sample only, actual terms may differ):
Loan Amount: $10,000
Fixed Rate: 7.50%
Repayment Term: 120 months
Monthly Payment: $118.70
The total amount of interest and principal paid over the 120-month term at 7.50%:
Total Payments $14,244 Total Interest Paid $4,244 Total Principal Paid $10,000
|Month||Starting Balance||Monthly Payment||Interest||Principal|
In this Example
An amortization schedule is calculated that shows that the borrower must pay $118.70 each month for 120 months in order to meet the interest obligation and to pay down the borrowed amount to $0 over 10 years.
The interest charges for the first month is calculated as such:
$10,000 X 7.50% (divided by) 12 months = $62.50
In the first payment, the borrower pays the lender $62.50 in interest. The remaining amount of $56.20 will repay the loan and reduce the borrowed amount to $9,943.80.
The interest charges for the second month is calculated as such:
$9,943.80 X 7.50% (divided by) 12 months = $62.15
In the second payment, the borrower pays the lender $62.15 in interest. The remaining amount of $56.55 will repay the loan balance and reduce the borrowed amount to $9,830.34.
This will continue all the way through the 120th payment, where the borrower pays the lender $0.74 in interest. The remaining amount of $117.96 will repay the loan balance and reduce the borrowed amount to $0. The loan obligation has been paid off.