Question

In 250 words, describe 3 (three) benefits of using the PMT Function prior to taking out a Loan or Line or Credit

Answer 1

PMT function is used to calculate the monthly payment or periodical payment to pay off the mortgage loan. PMT function is used to calculate the amount that would be paid on regular basis as annuity towards the payment of interest and principal. PMT function works when the period of mortgage and interest rate is constant.

Followings are the benefits of using PMT function prior to taking a loan or line of credit.

(1) PMT function helps in deciding the monthly payment that would be required to pay the mortgage loan over a peiod of time

(2) WIth the help of PMT function one can divide the total payment into interest portion and principal portion and can be used to know how much portion of regular payment is going towards the payment of interest and how much portion is going towards the interest payment

(3) WIth the help of PMT function one can know that how much total interest would be paid over the the life of mortgage period.

(4) PMT function plays a very important role in financial planning and financial resource management.