Let me tell you how do banks calculate interest on loans. Banks in India calculate interest on home loans using the compound interest method. This means that interest is calculated not only on the principal loan amount, but also on the accumulated interest.
My father had taken out a home loan of Rs. 50 lakhs from a bank. The interest rate on the loan was 8% per annum. The loan term was 20 years.
How Does Bank Calculate Interest on Home Loan?
The bank calculated the interest on the loan using the following formula:
Interest = (Principal loan amount * Interest rate * Loan term in months) / 12
The bank calculated the interest on the loan on a monthly basis. The interest for the first month was calculated as follows:
Interest = (5000000 * 8 * 1) / 12 = Rs. 3333.33
The interest for the second month was calculated as follows:
Interest = (5000000 * 8 * 2) / 12 + Rs. 3333.33 = Rs. 6666.66
The bank continued to calculate the interest in this way for the entire loan term.
How Bank Calculate EMI for Home Loan?
My father repaid the loan in equal monthly instalments (EMIs). The EMI was calculated such that it covered both the principal and interest components of the loan.
Here are some tips for reducing the interest on your home loan:
Choose a shorter loan term.
Make larger down payments.
Make additional payments whenever possible.
Refinance your loan to a lower interest rate.
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Authors Of The Question
How bank calculate interest on home loan?
Neelu
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3 Year
2021-11-09T15:25:34+00:00 2021-11-09T18:23:43+00:00Comment
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