Yield maintenance prepayment is a calculation that is used to determine the amount of money that a borrower must pay in order to exit a loan before its scheduled maturity. This calculation is typically used for loans that have a balloon payment due at the end of the term or a loan that is due to be refinanced. It is important for borrowers to understand how to calculate yield maintenance prepayment in Excel so they can make sure they are paying the correct amount when they prepay their loan.
What is Yield Maintenance Prepayment?
Yield maintenance prepayment is a calculation that is used to determine the amount of money that a borrower must pay in order to exit a loan before its scheduled maturity. This calculation is typically used for loans that have a balloon payment due at the end of the term or a loan that is due to be refinanced. In order for the lender to maintain the same yield as if the loan had been paid in full, the borrower must pay the amount of money calculated from the yield maintenance prepayment formula.
How to Calculate Yield Maintenance Prepayment in Excel
Calculating yield maintenance prepayment in Excel is relatively straightforward. The formula used to calculate yield maintenance prepayment is as follows:
YM = (P + I x D)/(1 - (1 + I) ^ (-N))
Where:
YM = Yield maintenance prepayment P = Principal amount of the loan I = Interest rate of the loan D = Discount rate N = Number of days remaining on the loan
In order to calculate yield maintenance prepayment in Excel, the borrower must first enter the principal amount of the loan, the interest rate of the loan, and the discount rate into cells in an Excel spreadsheet. Once these values are entered, the borrower can calculate the yield maintenance prepayment by using the above formula.
Understanding the Components of Yield Maintenance Prepayment
When calculating yield maintenance prepayment, it is important to understand each of the components of the formula. The principal amount of the loan is the total amount of money that the borrower has borrowed from the lender. The interest rate of the loan is the rate of interest that the borrower is paying on the loan. The discount rate is the rate at which the lender would discount the loan if it were repaid at the current time. The number of days remaining on the loan is the total number of days that remain until the loan is due to be repaid in full.
Factors that Affect Yield Maintenance Prepayment
It is important to note that there are a number of factors that can affect the amount of money that a borrower must pay in order to exit a loan before its scheduled maturity. The principal amount of the loan, the interest rate, and the discount rate are all factors that can affect the amount of money that a borrower must pay. The number of days remaining on the loan is also a factor that can affect the amount of money that a borrower must pay.
Benefits of Calculating Yield Maintenance Prepayment in Excel
Calculating yield maintenance prepayment in Excel is a relatively simple process that can provide borrowers with a greater understanding of the amount of money they must pay in order to exit a loan before its scheduled maturity. By understanding the components of yield maintenance prepayment and how they can affect the amount of money that must be paid, borrowers can make informed decisions about their loan and ensure that they are paying the correct amount when they prepay their loan.