Weighted Average Life Calculator
Accurately calculate weighted avg life (WAL) for bonds, loans, and portfolios
Principal Repayment Schedule
Enter the timing and amount of principal repayments to calculate WAL.
Years from Now
Principal Amount ($)
Weighted Average Life (WAL)
3.00 Years
The average time required to repay the principal amount.
Total Principal
$50,000.00
Total Principal × Time
150,000.00
Last Payment Date
Year 5
Repayment Schedule Visualization
■ Principal Payment
■ Cumulative Repayment
Calculated Schedule Details
| Time (Years) | Principal Payment ($) | Weight (P × T) | % of Total Principal |
|---|
What is Weighted Average Life (WAL)?
In the world of fixed-income securities and loan amortization, to calculate weighted avg life (WAL) is to determine the average length of time that each dollar of unpaid principal remains outstanding. Unlike the final maturity date, which only tells you when the very last payment is due, the weighted average life provides a more nuanced view of the credit's timing risk.
Investors, lenders, and financial analysts use the WAL metric to estimate the credit risk and interest rate sensitivity of a bond or loan. A shorter WAL generally implies lower risk because the principal is repaid sooner, whereas a longer WAL exposes the lender to market fluctuations for a longer duration.
It is commonly applied to mortgage-backed securities (MBS), asset-backed securities (ABS), and amortizing loans where principal is returned in installments rather than a single lump sum.
Calculate Weighted Avg Life: Formula and Math
To calculate weighted avg life, you must weigh each principal repayment by the time at which it occurs. The formula effectively finds the "center of gravity" of the principal cash flows.
Formula:
WAL = Σ (P × T) / Σ P
WAL = Σ (P × T) / Σ P
Where:
- P = The principal amount repaid at a specific time.
- T = The time (usually in years) when the payment is made.
- Σ (P × T) = The sum of the product of each payment and its timing.
- Σ P = The total principal amount of the loan or bond.
| Variable | Meaning | Typical Unit |
|---|---|---|
| Time (T) | Duration from start until payment | Years or Months |
| Principal (P) | Portion of debt repaid | Currency ($) |
| WAL | Weighted Average Life | Years |
Practical Examples of WAL Calculation
Example 1: A Simple 3-Year Amortizing Loan
Imagine a $30,000 loan repaid in three equal annual principal installments of $10,000 each. To calculate weighted avg life:
- Year 1: $10,000 × 1 = 10,000
- Year 2: $10,000 × 2 = 20,000
- Year 3: $10,000 × 3 = 30,000
- Total (P × T): 60,000
- Total Principal: $30,000
- WAL: 60,000 / 30,000 = 2.0 Years
Even though the loan matures in 3 years, the average dollar is lent out for only 2 years.
Example 2: A "Bullet" Bond
Consider a $100,000 bond that pays interest only for 5 years and repays the full principal at the end of Year 5.
- Years 1-4: Principal = $0. (P×T = 0)
- Year 5: Principal = $100,000. (100,000 × 5 = 500,000)
- WAL: 500,000 / 100,000 = 5.0 Years
For bullet loans, the WAL equals the maturity.
How to Use This Calculator
This tool is designed to simplify the math when you have multiple or irregular repayment schedules.
- Enter Time: Input the year (or period) when a payment occurs. For a payment happening in 6 months, enter 0.5.
- Enter Principal: Input the amount of principal being repaid at that specific time. Do not include interest payments.
- Add Rows: If your schedule has more than 5 payments, click "Add More Rows" to expand the list.
- Calculate: The tool will instantly compute the WAL, sum the principal, and visualize the schedule.
Key Factors That Affect Weighted Average Life
When you look to calculate weighted avg life, several real-world factors can shift the result significantly:
- Prepayment Speed (CPR): In mortgages, borrowers often refinance or sell homes early. Higher prepayment speeds drastically reduce the WAL.
- Amortization Type: A "bullet" loan has the longest possible WAL (equal to maturity). A fully amortizing loan has a WAL roughly half its maturity.
- Interest Rates: Lower rates often trigger refinancing, which accelerates principal repayment and shortens WAL.
- Sinking Funds: Bonds with sinking fund provisions require the issuer to retire a portion of debt early, reducing WAL.
- Defaults: While defaults stop cash flow, the recovery of principal (if any) typically happens later, or the loss of principal changes the denominator, complicating the WAL calculation.
- Call Provisions: If a bond is callable, the issuer may repay the entire principal early, instantly shortening the WAL to the call date.
Frequently Asked Questions (FAQ)
Is WAL the same as Duration?
No. WAL considers only principal repayments. Duration (Macaulay or Modified) considers all cash flows, including interest, and measures sensitivity to interest rate changes.
Why is WAL important for MBS investors?
Mortgage-Backed Securities have uncertain maturity dates due to prepayments. WAL provides a standard estimate of how long the investment will actually last compared to the stated 30-year term.
Can WAL be longer than Maturity?
No. Since WAL is an average of the time periods, it cannot exceed the maximum time period (final maturity).
Does Interest Rate affect the calculation directly?
The mathematical formula to calculate weighted avg life does not use the interest rate directly—only principal and time. However, interest rates indirectly affect WAL by influencing prepayments.
How do I calculate WAL for monthly payments?
Use months as your time unit for calculation, then divide the final result by 12 to get the WAL in years.
What is a "Short" vs "Long" WAL?
This is relative. In short-term corporate paper, a short WAL might be 30 days. In mortgages, a "short" WAL might be 2-3 years, while a "long" WAL might be 7-10 years.
Does a higher WAL mean higher yield?
Generally, yes. Investors demand a higher yield (spread) for locking up their capital for a longer average time due to increased liquidity and interest rate risk.
Can I use this for credit card debt?
Technically yes, if you have a fixed repayment plan. It helps you see how long the average dollar of debt will hang over your head.
Related Tools and Resources
- Loan Amortization Calculator – Detailed breakdown of principal vs interest over time.
- Bond Yield Calculator – Calculate YTM and current yield for fixed income.
- Mortgage Prepayment Calculator – See how extra payments affect your loan term.
- Duration and Convexity Guide – Understand advanced bond risk metrics.
- CAGR Calculator – Calculate compound annual growth rates for investments.
- DSCR Calculator – Analyze cash flow available for debt service.
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// Using insertAdjacentHTML for better performance than innerHTML +=
var div = document.createElement('div');
div.innerHTML = html;
container.appendChild(div);
rowCount = end;
}
function calculateWAL() {
var totalPrincipal = 0;
var totalPT = 0; // Principal * Time
var lastYear = 0;
var scheduleData = [];
// Loop through all possible rows
for (var i = 1; i 0) {
var weight = p * t;
totalPrincipal += p;
totalPT += weight;
if (t > lastYear) lastYear = t;
scheduleData.push({
time: t,
principal: p,
weight: weight
});
}
}
}
// Avoid division by zero
var wal = 0;
if (totalPrincipal > 0) {
wal = totalPT / totalPrincipal;
}
// Update DOM
document.getElementById("result-wal").innerHTML = wal.toFixed(2) + ' Years';
document.getElementById("result-total-principal").innerText = formatCurrency(totalPrincipal);
document.getElementById("result-total-pt").innerText = formatNumber(totalPT);
document.getElementById("result-last-year").innerText = "Year " + lastYear;
updateTable(scheduleData, totalPrincipal);
drawChart(scheduleData);
}
function updateTable(data, totalP) {
var tbody = document.querySelector("#schedule-table tbody");
var html = "";
// Sort data by time
data.sort(function(a, b) { return a.time – b.time; });
if (data.length === 0) {
html = "' +
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