Re: Loan accounts

At 9/1/2011 09:08 AM +0100, John Sampson wrote:
>The terms of the loan include a fixed interest rate so "Interest 
>Remaining" is predictable - money that I would have to pay if I settled now.

Do you mean that if you paid the entire principal balance today, that 
you would still owe all the interest shown on the future amortization schedule?

That would be extremely rare, and very likely illegal.

As Ed Melia says, the future interest is a speculative transaction, 
not a present obligation, no matter how predictable it is. (Unless 
you are obligated to pay it even after paying off the principal, 
which I'm assuming is not the case.) I recently predicted that if I 
pay my mortgage off on schedule, I will pay $8000 in interest over 
the next six years. But I also predicted that I will pay about $100 
in interest over the same time period if I pay it off next week.

And I'm probably going to pay it off, since it looks like interest 
rates are going to remain very low for a very long time, and so 
paying off the mortgage is a good investment. Should I include the 
($8000) in my net worth today, and not two weeks from now, just 
because I paid off the mortgage? Note that this transaction does not 
change anything except the future interest, as I have merely moved 
assets from one place (a bond fund) to another place (the principal 
of the mortgage loan), and so this transaction should not affect my 
net worth at all. So including the future interest today and not next 
week makes no sense.

So the speculative future interest does not belong as part of your 
*current* net worth. If you were to create a prediction of your 
future net worth, you would include that expense and a lot of other 
expenses (like food), and predicted income, predicted change in value 
of your property, etc etc. MD does not offer predictions except in 
very limited cases, and certainly not for net worth. This sort of 
prediction is worth attempting -- it's at the root of retirement 
planning. But it's not in MD's realm.

Edward 

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