Calculate average loan life of a term loan?

Answer 1

It will be different from final maturity, in case this is an amortising loan.

In essence, you should be looking at this particular term loan as a series of shorter term loans with different final maturities.

So to calculate the average life, you should calculate the average of these multiple maturities weighted by the debt sums (aka debt amortisation sums).

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Say if you have borrowed £100 with semi-annual amortisation over a period of 10 years, £5 is due in 6 months, another £5 in 1 year... another £5 in 9.5 years and the final £5 in 10 years.

In Excel use SUMPRODUCT function to multiply an array of maturities (0.5,1,...,9.5,10.0) by an array of debt sums (£5,£5,...,£5,£5). You'll then divide the result over the total amount (£100). The result should be 5.25 years.

This is a reflection of the fact that your liability decreases over time.