There are several different ways of expressing interest rates and how interest is calculated. APR (Annual Percentage Rate) was created to provide a common factor and to allow comparisons on a level playing field. However APR does not take into account early settlement without penalty, it can only ever express the total interest over the full life of a contract.
Boat mortgages rarely continue for the full term and so it is important to understand what costs are involved with early settlement.
Promarine Finance uses the Actuarial method to calculate interest.
Promarine Finance uses the Actuarial method to calculate interest. The Actuarial method is the process of allocating payments made on a debt between the amount financed and the finance charge pursuant to which a payment is applied first to the accumulated finance charge and any remainder is subtracted from, or any deficiency is added to, the unpaid balance of the amount financed.
Here’s a PDF breakdown of the Actuarial method we use to calculate marine mortgages.
With the Actuarial method, a settlement figure is calculated by working out the future unearned interest and subtracting this from the total interest and capital due.
Here’s a calculator for an example of a settlement figure for a vessel.