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Home / Finance / Home Loan / How bank calculate interest on home loan?
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How bank calculate interest on home loan?

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0 2023-10-11T19:05:50+00:00
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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.

Calculate your EMI on a home loan via the NoBroker EMI calculator Read More: How to calculate EMI using simple calculator? How to Calculate Pre EMI Interest for Home Loan? How to calculate interest rate from EMI? How to Calculate Home Loan EMI?

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0 2021-11-09T15:28:56+00:00
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If you take a home loan, then EMI is the amount that you are required to pay monthly to the bank until your home loan amount is completely paid off. It consists of the part of the principal amount to be repaid as well as interest on the loan. The EMI’s interest component will be larger during the early months and eventually reduce with every payment. Let me tell you how home loan is calculated: Home Loan Interest Calculation Formula: EMI = [PxRx(1+R)^N]/[(1+R)^N-1] Where, P: Principal (loan amount), N: Loan tenure in months. R: Interest rate per month (To get the monthly interest rate, the annual interest rate is divided by 12), and How to Calculate Interest of Home Loan with Example Let’s say you took a housing loan of Rs. 3500000 from your preferred bank. The home loan tenure is 360 months for 30 years. The rate of interest associated with the loan is 8.65% per annum. After applying the formula on how bank calculate interest on home loan, the monthly installment amount will be Rs 27285. P = 3500000 N = 30 years (360 Months) R = 8.65% Interest Rate = 8.65% Monthly EMI = Rs. 27285 EMI Paid For the Year = Rs. 27285x12= Rs. 327419 I hope now you know how do banks calculate interest on home loans. Read similar answers: Which rate of interest(fixed or floating) is best for the salaried person ? How to calculate housing loan interest rate? What happens if home loan EMI is not paid? How to reduce EMI of existing home loan? I hope you like my answer on home loan interest calculation formula. However, I checked my EMI on the home loan through this, [widget_homeLoan_checkEligibility_form]

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