MS Excel: CUMIPMT function for cumulative interest

The CUMIPMT function in Excel calculates the cumulative interest paid on a loan between two periods. In simple terms, this function helps you determine how much interest has been paid on a loan during a specific period, based on the loan's interest rate, payment schedule, and loan amount.

This function is especially useful in loan amortization schedules and financial modeling.

Syntax

CUMIPMT(rate, nper, pv, start_period, end_period, type)

Argument	Description
rate	The interest rate for each period.
nper	The total number of periods (payments) in the loan.
pv	The present value, or principal amount of the loan.
start_period	The first period in which interest is calculated.
end_period	The last period in which interest is calculated.
type	The type of payment: 0 = Payments at the end of the period (default) 1 = Payments at the beginning of the period

Key Points

• The CUMIPMT function returns a negative value because it represents money paid out (interest paid to the lender).

• Interest payments are based on the loan's interest rate and principal amount.

• It is useful for loan amortization, cash flow analysis, and determining how much interest has been paid over time.

Practical Example

Scenario:

You have a loan of $10,000 with an annual interest rate of 6%, and it is paid monthly over 5 years (60 months).You want to know how much interest you will pay during the first year (periods 1 through 12).

Formula:

=CUMIPMT(6%/12, 60, 10000, 1, 12, 0)

Explanation:

• rate: 6% annual interest divided by 12 months = 0.5% monthly rate.

• nper: The loan is paid over 60 months.

• pv: The loan principal is $10,000.

• start_period: Interest starts at the first month (period 1).

• end_period: Interest ends at the 12th month.

• type: Payments are made at the end of each period (0).

Result: -€569.03

Explanation:This means that in the first year of the loan, $569.03 will be paid in interest. The

negative sign indicates that the money is paid out.

Another Example:

Now, let’s say you want to know how much interest will be paid from month 13 to month 24.

Formula:

=CUMIPMT(6%/12, 60, 10000, 13, 24, 0)

Result: -€529.87

Summary

Item	Value
Loan Amount (PV)	$10,000
Interest Rate	6% (Annual)
Payment Periods	60 (5 years)
Interest Payment Periods	1 through 12
Cumulative Interest	$569.03 (first year)

Important Notes

• CUMIPMT calculates interest for the period(s) between start_period and end_period, inclusive.

• The function will return a negative value since it's an outflow of money.

• To ensure accuracy, remember that rate should be divided by the number of periods in a year (e.g., for monthly payments, divide by 12).

• CUMIPMT is often used in loan amortization schedules to calculate how much interest has been paid over time.

When to Use CUMIPMT?

• To calculate interest payments made over a specific period in a loan.

• For loan amortization schedules, showing how much of the loan is paid in interest at different stages.

• To assess the total interest paid in a loan, which can be useful for budgeting and financial planning.

• For fixed-rate loans, especially when payments are made regularly (e.g., monthly).

Conclusion

The CUMIPMT function in Excel is an essential tool for anyone working with loan analysis and financial calculations.It helps you determine the cumulative interest paid over any specified period, making it valuable for loan amortization schedules, budgeting, and cash flow analysis.