HP 12C Instruction Manual page 2

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HP 12C Platinum Mortgages with balloon payments
The HP12C Platinum TVM
A set of mathematical tools are built into the HP12C Platinum for evaluating the time value of money (TVM), and the
concepts of the present value of money (PV), the future value of money (FV), periodic payments (PMT), interest rates
(i), and the number of periods (n). There are many standard situations where TVM calculations can be used to solve
problems, such as calculating loan and mortgage variables.
Cash flow diagrams and sign conventions
The sign conventions for cash flows in the HP12C Platinum follow this simple rule: money received is positive (arrow
pointing up), money paid out is negative (arrow pointing down). The key is keeping the same viewpoint through each
complete calculation. The regular use of cash flow diagrams allows a faster approach to solve most TVM-related
problems. The cash flow diagram below represents the borrower viewpoint of the most common mortgage problems with
balloon payment and their relation to the TVM variables.
$ = Mortgage loan amount
1
There are also two functions meant to be an aid when entering or retrieving annual values for n and ¼ : A and
C. Pressing gA is the same as pressing \12 µ n in RPN mode or µ12³n in
algebraic mode, meaning the number of years can be keyed in and stored as number of months automatically. Pressing
gC is the same as pressing \12 z ¼ in RPN mode or z 12³¼ in algebraic mode,
meaning the yearly interest rate can be keyed in and stored as monthly interest rate automatically. It is also possible to
retrieve the yearly-related values by pressing :gA (number of years) and/or :gC (yearly interest rate)
whenever necessary.
Practice solving mortgage problems with balloon payment
Example 1: A home priced at $114,400, is bought with a mortgage with a $900 monthly payment for the next 30 years.
The bank quoted an interest rate of 8.75%. If after five years the house must be sold, what is the amount
still owed on the house? The cash flow diagram in Figure 2 illustrates this example.
$114,400
1
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2 3
P = Monthly mortgage payments
2 3
Monthly payments: $900,00
¼ = Monthly interest rate
...
i = 8.75% (yearly)
...
- 2 - HP 12C Platinum Mortgages with balloon payments - Version 1.0
n = number of months
n-2 n-1
M = Balloon payment
Figure 1
n = 5 years
58 59
? (Balloon payment)
Figure 2
n
60