Examples
On a 30-year loan, paying equal amounts monthly, one has the following WALs, for the given annual interest rates (and corresponding amortizing payments, calculated via an amortization calculator, using a principal of $100,000):
| Rate | Payment | Total Interest | WAL Calculation | WAL |
|---|---|---|---|---|
| 4% | $477.42 | $71,871.20 | $71,871.20/($100,000*4%) | 17.97 |
| 8% | $733.76 | $164,153.60 | $164,153.60/($100,000*8%) | 20.52 |
| 12% | $1,028.61 | $270,299.60 | $270,229.60/($100,000*12%) | 22.52 |
Note that as interest rate increases, WAL increases. WAL is independent of principal, though payments and total interest are proportional to principal.
See below for relations between amortized payments, total interest, and WAL.
Read more about this topic: Weighted-average Life
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