Escondido Real Estate

How To Calculate Compound Interest When Buying Escondido Condos

What is compound interest and why is it important to your Escondido condo?  Compound interest means that interest is accrued not only on the principal amount, but also the principal amount plus the interest that was already earned.  It's important to you as an investor in Escondido condos, to know how to calculate compound interest.  And you'd be surprised what a difference in the final numbers this small detail can make!

Let's use a $500,000 principal amount with a 8% interest rate, compounded annually for three years.

* Year 1

$500,000 X .08 for one year is $40,000 in interest.

* Year 2

Now we have $540,000 X .08 for the second year is $43,200 in interest.

* Year 3

Starting with $543,200 accumulated X .08 = $43,456 in interest.

At the completion of the third year, the compound interest totals $543,456.  Compound interest far exceeds the return of simple interest.