Disagio

Agreement: Disagio (%) on the loan

Also known as: Damnum, Disagio-Darlehen, discount, original issue discount

A disagio is a deduction from the payout: the bank pays out, say, 97 % of the principal, but the full 100 % is repaid and bears interest. Economically it is interest paid up front in exchange for a lower nominal rate, which is why loans with a disagio usually carry a visibly lower rate than loans without.

How it works

1. Formula

$$N = B_0 \cdot (1 - d)$$

where $N$ is the net payout, $B_0$ the principal and $d$ the disagio rate.

2. With the terms

$$\text{Net payout} = \text{Principal} \cdot (1 - \text{Disagio rate})$$

3. With the example numbers: 100,000 EUR principal, 3 % disagio.

$$N = 100{,}000 \cdot (1 - 0.03) = 97{,}000.00$$

The repayment schedule is calculated on the full principal of 100,000. The disagio appears once, on the payout, and is deducted from every tranche if the loan is drawn in parts.

Example

100,000 EUR at 4.00 % p.a., 5 years, annuity, 3 % disagio.

The borrower receives 97,000.00 and pays back 112,313.55, so the true cost of the money is 15,313.55, not the 12,313.55 the nominal rate suggests. Over five years the 3 % disagio corresponds to roughly 0.6 percentage points of additional annual rate.

In LoanMonitor

• Wizard, Terms: enter the Disagio (%). The wizard shows the resulting net payout.
• The schedule carries the deduction in its own Disagio line at each payout, so the cash actually received is visible, while interest and repayment run on the full principal.
• For loans drawn in tranches the disagio is deducted from each disbursement; see Construction and Drawdown Loans.

Related

• Loan Types overview
• Annuity Loan
• Rate Lock and Prolongation