Mon 6 Mar, 2017 11:48 am
Hey everyone, I'm hoping someone can help me crunch these numbers correctly.
I purchased a small business with three partners a year ago and we are talking about paying down the principal early to save money in the long run. Here are the details:
The purchase price was $550,000 for the business.
Each of us put up $70,000 to begin with. The down payment was $125,000 right up front. The remainder of the money each partner put up is our financial reserves. We are not using the reserves to pay down the loan.
This is a 5 year owner financed loan, at a rate of 6% compounded monthly. According to our payment schedule, the balloon payment due at the end of month 60 is $426,058.08. The business makes the monthly payment of $2,548.09 which includes both interest and principal. To help check numbers, the first payment's breakdown was: $2,125.00 interest, $423.09 principal.
We are 12 months into the 60 month loan period. So at this point we have paid $25,358.03 in interest and $5,219.05 in principal. We still owe $419,780.95 on the principal.
What I want to determine is how much we reduce our payment due at the end by doing the following for the remaining 48 months of the loan period:
1. Each partner will contribute $1,000/month toward the principal in addition to the business’s payment made each month against the principal & interest.
2. One partner has their share of the balloon payment ($106,514.52) already. This number is calculated as 1/4 of the balloon payment per the payment schedule. They can put this down immediately against the principal.
3. Two other partners can contribute $10,000 lump sums in the first month of each year in addition to the $1,000 paid each month.
So total payments would look like this:
Partner 1: $1,000/mo. + $106,514.52 (one time, paid in mo. 13)
Partners 2 & 3: $1,000/mo each + $10,000 each (first month of each new year on the loan)
Partner 4: $1,000/mo only
I'm trying to figure out how much we save by doing it this way versus paying the minimum and making a large payment at the end.
Also I want to reconcile so that the partner who paid the ~$106K lump sum right up front is refunded the balance between what they paid and what the other partners paid total.
If anyone can help me set this calc up, I’d appreciate it!