For money transactions discounting future payments on the present psychological reasons is more advantageous than the calculation of effective interest rates.
When comparing deposits and loans are the effective interest rate, present value and span the key figures. They are based on actual cash flows and provide investors with clear results, which solution is best from the numbers here. This is not the case with the addition. When borrowing, the legislature has made the effective interest rates by the prices regulation acceptable, so many investors know that the effective interest rate is more important than the nominal rate. The cash value is for most investors but like the old days, a closed book, although individuals often stumble over the phenomenon of having to discount future payments to the present. Present values are important in the lending business and supply issues, the benefits of Abzinsens or discounting this example shows:
A business economist is 45 years old. He is married and taxed 112.00 euros per year. This results in a tax burden of 35 percent if the income tax (30,696 euros), the solidarity surcharge (1,688 euros) and the church tax (2,456 euros) are added together. The high taxes have led the private citizen to buy a property to be leased for 15 years. The property costs 300,000 euros, from this amount to be paid by means of a loan two thirds.
For 200,000 euros, the investor has worried two offers. The bank proposes to include a regular annuity. The interest rate is 4.75 percent and is 15 years. In this time of credit is to be repaid. The other bank makes to finance the property with the help of a fixed loan proposal, which is to be replaced by a building loan. The fixed-rate loan costs 4 percent per year, and the borrowing rate of the building savings loan is 3.75 percent. The term of the combination is 15 years. That is, the duration of the funding is identical. Only the interest rates seem to differ, here 4.75 percent, where 3.75 to 4 percent.
It is a model of how individuals come to falter when it comes to money. The comparison of nominal interest rates is the best way to stray from the right path. Protection offer only cash flows and key figures. These can be in the present case both effective interest rates and cash values. The business administrator receives 200,000 euros and wipes out the debt over the course of 15 years. Which is a credit. At this structure does not change the fact that the savings agreement only plant, then credit anything. This comes in both cash flows expressed.
Fall tax benefits
The nominal information on the annuity are in the first table. The mortgage has a term of 15 years. The 200,000 euros will be paid at the rate of 100 percent. There are no costs for processing and estimation. Thereby the nominal debt is 200,000 euros. The annual nominal interest rate is 4.75 percent and is valid for 15 years. The rates of interest and principal are payable monthly in arrears. You will be charged on these days. The rates are 1556 euros. Thus, the debt will decrease over time to zero euros.