Attempting to calculate monthly repayments with BigDecimal calculations

Question

I am a beginner attempting to create a small program in Java that allows a user to input their loan term, interest rate etc. and will hopefully spit out an estimate for monthly repayments. When i am doing this, however, it gives me a completely different number to what i've calculated manually.

I been told to use the BigDecimal math system as the primitive double data type is not accurate enough for financial calculations.

The steps i am doing are attempting to mimic this formula : M = P [i(1+i)^n/ 1-(1+i)^n]

BigDecimal iRateInput = BigDecimal.valueOf(iRate);
BigDecimal twelve = new BigDecimal("12"); 
BigDecimal iRateMonthly = iRateInput.divide(twelve); 
BigDecimal one = new BigDecimal ("1"); 
BigDecimal iRateTemp = iRateMonthly.add(one);
BigDecimal loanTermBD = BigDecimal.valueOf(loanTerm);
loanTermBD = loanTermBD.multiply(twelve); 
BigDecimal iRatePower = iRateTemp.pow(loanTerm); 
BigDecimal iRateTop = iRateMonthly.multiply(iRatePower);
BigDecimal iRateBottom = iRatePower.subtract(one);
BigDecimal iRateTotal = iRateTop.divide(iRateBottom, BigDecimal.ROUND_UP);
BigDecimal borrowAmountBD = BigDecimal.valueOf(borrowAmount);
BigDecimal repayments = borrowAmountBD.multiply(iRateTotal);

I have been testing this code with:

P = 100,000

n = 15 years (*12)

r = 0.06p/a

According to my calculations, the monthly repayment should be 843.86 but I am getting 6936.43

Help would be appreciated! <3

Answer 1

I do not see why you need to use BigDecimal here

private static double calculateRatePower(double rate, int period) {
  return Math.pow(1.0 + rate/12.0, period * 12.0);
}

public static void main(String[] args) throws IOException {
  double iRate = 0.06;
  double borrowAmount = 100000.0;
  int loanTerm = 15;

  double top = (iRate / 12.0) * calculateRatePower(iRate, loanTerm);
  double bottom = 1 - calculateRatePower(iRate, loanTerm);

  double repayments = borrowAmount * (top/bottom);
  System.out.println(repayments);
}

running this yields

-843.8568280484624

If you still want to use BigDecimal I suggest doing some stuff in separate methods for a more readable code

private static BigDecimal ratePerMonth(double rate) {
  return BigDecimal.valueOf(rate).divide(BigDecimal.valueOf(12), 20, RoundingMode.DOWN);
}

private static BigDecimal calculateRatePower(double rate, int period) {
  BigDecimal onePlus = BigDecimal.ONE.add(ratePerMonth(rate));
  return onePlus.pow(period * 12);
}

public static void main(String[] args) throws IOException {
  double iRate = 0.06;
  double borrowAmount = 100000.0;
  int loanTerm = 15;

  BigDecimal top = ratePerMonth(iRate).multiply(calculateRatePower(iRate, loanTerm));
  BigDecimal bottom = BigDecimal.ONE.subtract(calculateRatePower(iRate, loanTerm));
  BigDecimal ratio = top.divide(bottom, 20, RoundingMode.DOWN);

  BigDecimal repayments = BigDecimal.valueOf(borrowAmount).multiply(ratio);
  System.out.println(repayments);
}

which yields

-843.856828048451310000000