A Financial Analysis of Certain Flexible Loans: Calculation of the Average Duration

Salvador Cruz Rambaud

Abstract


The current economic and financial crisis situation, in general, and the real-estate crisis, in particular, have favoured the introduction of new banking products, especially loans, which, on the one hand, try to make the investment in housing attractive through novel mortgage loans and, on the other hand, to adapt to the possible financial difficulties of the borrower. In effect, lot of families need to have a house, but the banks are afraid that the borrower punctually could not face the corresponding payments. In this case, some financial entities give the borrower the possibility of deferring some payments until the end of the loan term, under the conditions which will be detailed hereinafter. In this paper, we present a mathematical expression of the average duration of the loan and the value of the payment that would amortize the loan in the initially stipulated period.

Full Text: PDF DOI: 10.5539/ijef.v5n4p53

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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