How to Use the IPMT Function in Excel
Today, we will explore the IPMT function in Excel and Google Sheets. IPMT, which stands for “Interest Payment,” is a financial function used to determine the interest portion of a specific loan payment during a given period.
Basic Syntax
The syntax for the IPMT function is identical in both Excel and Google Sheets:
IPMT(rate, period, periods, pv, [fv], [type])
- rate: The interest rate for each period.
- period: The specific period for which you are calculating the interest.
- periods: The total number of payment periods in the investment or loan.
- pv: The present value or the total value currently of all future payments.
- fv: [Optional] The future value, or the cash balance you aim to achieve after the last payment is made. If not specified, it is assumed to be 0.
- type: [Optional] Indicates the timing of the payments, where 0 means payments are due at the end of the period and 1 at the beginning. If omitted, it defaults to 0.
Example: Calculating Interest Payment
Consider a situation where you have borrowed $10,000 at an annual interest rate of 5%, to be repaid over 5 years with monthly installments. To find out the interest portion of the 10th payment, you would use the following details:
Loan Information | |
---|---|
Loan Amount (PV) | $10,000 |
Annual Interest Rate | 5% |
Number of Payments (Periods) | 60 (5 years * 12 months) |
In Excel or Google Sheets, the formula to calculate the interest for the 10th month would be:
=IPMT(5%/12, 10, 60, 10000)
Entering this formula will result in obtaining the interest portion for the 10th payment of the loan.
The IPMT function is versatile and can be employed in various financial calculations, including loan amortization schedules and investment evaluations. It is important to ensure that all parameters are accurately entered to reflect the specific scenario you are analyzing.
More information: https://support.microsoft.com/en-us/office/ipmt-function-5cce0ad6-8402-4a41-8d29-61a0b054cb6f