1. Press Ctrl-A ©G Dear 2009 – Not to be sold/Free to use Cost of a Loan Stage 5 - Year 10

2. 2 Cost of a loan – Compound vs Flat Interest End of Slide Be Careful 10% Flat Interest ≠ 10% Compound Interest Financial Institution often quote either or both to confuse YOU

3. 3 Cost of a loan – Compound vs Flat Interest End of Slide Reducible Rate % 6 7 8 9 10 11 12 Equivalent Flat Interest Rate % 1 yr 3.28 3.83 4.39 4.94 5.50 6.06 6.62 2 yr 3.18 3.73 4.27 4.83 5.37 5.93 6.49 3 yr 3.17 3.72 4.27 4.83 5.39 5.95 6.52 20 yr 3.60 4.30 5.04 5.80 6.58 7.39 8.21 25 yr 3.73 4.48 5.26 6.07 6.90 7.76 8.64 …………………………………… Annual Interest Rates A Bank offers a loan for 20 years at 10% reducible. A Credit Union offers a loan for 20 years at 8% Flat. Which is best? 10% Reducible = 6.58% Flat Best

4. 4 Cost of a loan – Compound vs Flat Interest End of Slide Reducible Rate % 6 7 8 9 10 11 12 Equivalent Flat Interest Rate % 1 yr 3.28 3.83 4.39 4.94 5.50 6.06 6.62 2 yr 3.18 3.73 4.27 4.83 5.37 5.93 6.49 3 yr 3.17 3.72 4.27 4.83 5.39 5.95 6.52 20 yr 3.60 4.30 5.04 5.80 6.58 7.39 8.21 25 yr 3.73 4.48 5.26 6.07 6.90 7.76 8.64 …………………………………… Annual Interest Rates A Bank offers a loan for 20 years at 7% reducible. A Credit Union offers a loan for 20 years at 4% Flat. Which is best? 7% Reducible = 4.3% Flat Best

5. 5 Cost of a loan – Compound vs Flat Interest End of Slide Reducible Rate % 6 7 8 9 10 11 12 Equivalent Flat Interest Rate % 1 yr 3.28 3.83 4.39 4.94 5.50 6.06 6.62 2 yr 3.18 3.73 4.27 4.83 5.37 5.93 6.49 3 yr 3.17 3.72 4.27 4.83 5.39 5.95 6.52 20 yr 3.60 4.30 5.04 5.80 6.58 7.39 8.21 25 yr 3.73 4.48 5.26 6.07 6.90 7.76 8.64 …………………………………… Annual Interest Rates A Bank offers a loan for 20 years at 12% reducible. A Credit Union offers a loan for 20 years at 8.21% Flat. Which is best? 7% Reducible = 8.21% Flat Equal

6. 6 Cost of a loan – Monthly Repayments End of Slide Reducible Rate % 6 7 8 9 10 11 12 Monthly Payment per $1000 1 yr 88.07 86.53 86.99 87.45 87.92 88.38 88.85 2 yr 44.32 44.77 45.23 45.68 46.14 46.61 47.07 3 yr 30.42 30.88 31.34 31.80 32.27 32.74 33.21 20 yr 7.16 7.75 8.36 9.00 9.65 10.32 11.01 25 yr 6.44 7.07 7.72 8.39 9.09 9.80 10.53 …………………………………… A Bank offers a $110,000 loan for 20 years at 11% reducible. Monthly Repayment =110 Thousands x$10.53 = $1158.30 per month.

7. 7 Cost of a loan – Monthly Repayments End of Show Reducible Rate % 6 7 8 9 10 11 12 Monthly Payment per $1000 1 yr 88.07 86.53 86.99 87.45 87.92 88.38 88.85 2 yr 44.32 44.77 45.23 45.68 46.14 46.61 47.07 3 yr 30.42 30.88 31.34 31.80 32.27 32.74 33.21 20 yr 7.16 7.75 8.36 9.00 9.65 10.32 11.01 25 yr 6.44 7.07 7.72 8.39 9.09 9.80 10.53 …………………………………… A Bank offers a $120,000 loan for 25 years at 9% reducible. Monthly Repayment =120 Thousands x$8.39 = $1006.80 per month.