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Future Value Formula:
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The future value calculation determines how much an investment will grow over time with compound interest. It's particularly useful for mortgage planning and long-term financial projections.
The calculator uses the future value formula with monthly compounding:
Where:
Explanation: The formula calculates how much your initial investment will be worth after accounting for monthly compounded interest over a specified period.
Details: Understanding future value is crucial for financial planning, retirement savings, mortgage calculations, and making informed investment decisions.
Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive numbers.
Q1: Why use monthly compounding instead of annual?
A: Monthly compounding is more common in mortgage and loan calculations as it provides a more accurate representation of how interest accumulates in real-world financial products.
Q2: How does this differ from simple interest?
A: Compound interest earns interest on both the principal and accumulated interest, while simple interest only earns on the principal amount.
Q3: Can I use this for different compounding periods?
A: This calculator specifically uses monthly compounding. For different compounding frequencies, the formula would need to be adjusted accordingly.
Q4: How accurate is this calculation for real mortgages?
A: While this provides a good estimate, actual mortgage calculations may include additional factors like fees, insurance, and variable rates.
Q5: What's the rule of 72 and how does it relate?
A: The rule of 72 estimates how long it takes an investment to double (72 divided by the interest rate). It's a quick mental calculation that complements future value formulas.