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Farm Loan Payment Early
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Usedtofarm
Posted 10/7/2024 12:47 (#10918244 - in reply to #10918180)
Subject: RE: Farm Loan Payment Early


NE Ridger - 10/7/2024 11:27

Usedtofarm - 10/7/2024 10:45

dittfarms - 10/7/2024 09:03

It really only works the first year. After that you are still paying interest on a yearly basis but at a little bit smaller principal


This is true. YR 1 you save 4 months interest and more goes against principal. To get the same effect in yr. 2, you would need to make the payment July 1 and so on each year.



One of us needs to study up on how compound interest works. Not sure who.


If he pays the first payment 4 months early, additional payment is applied to P, Less to Interest. If he waits exactly 12 months and pays again, there is no saving on interest, he will pay 12 months of interest, with remaining going against P. This has nothing to do with compound interest. He is paying interest on the principal only. Now it works different if you are saving/investing. After 12 months you get paid 12 months of interest. If you leave that interest in the account, next year you get paid interest on the new balance, which includes the previous 1 year interest. Simply put $100 at 4% interest nets you $4.00 in interest. Year 2 you receive 4% on the $104 balance, $4.16 interest , year 3 you receive $4.33 and so on.
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