Modeling different principal debt repayment methods
Originally published: 28/02/2020 16:35
Publication number: ELQ-77460-1
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Modeling different principal debt repayment methods

This Excel file runs through five methods for modelling debt principal repayment

Being flexible is one of the pillars of best practice for financial models. You need to build flexibility wherever you expect changes in the base case assumptions. When it comes to debt, if you don’t already have a signed and sealed contract, you need to make sure that the models allows you to change the debt terms such as interest rate, fees, grace period, whether debt is capitalized or paid, and how the principal of debt is repaid...
In this manual, I want to show you how to build different debt repayment methods in your spreadsheets.

This Excel file runs through five methods for modelling debt principal repayment:

1. Annuity repayment: the sum of principal and interest due is the same in each payment period.
2. Straight-line or level repayment of principal: the same amount of principal is due each period
3. Step‐down amortization of principal
4. Step‐up amortization of principal
5. Loans with customized repayments of principal

The Spreadsheet is built based on best practice financial modeling standards. You can easily change the debt terms reflected in "Inputs" sheet and the interest and repayment schedule will adjust automatically.

By reading this manual and also going through the Excel file you should have everything you need to model different principal repayment methods.

This Best Practice includes
1 manual and 1 Excel

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Further information

The manual and spreadsheet is a step by step guide on how to build flexibility in any financial model when it comes to debt repayment. It can be used both as a template for the analysis of a debt or for teaching purpose.

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