Home loan interest rates are calculated in two ways-through simple interest and compound interest. For a long time, I had the query: is home loan simple or compound interest in India, but now I know the answer and also their differences as well. The formula to calculate the interest is also different for both of these but easy. Once you understand the definition of these two, you can figure out the differences yourself.Find out your payable amount per month using NoBroker’s EMI calculatorGet home loan at lowest interest rates through NoBroker Home Loan servicesWhat is a simple interest loan?A simple interest loan is a loan where the interest rate is calculated on the basis of the principal amount that is borrowed. There is a formula to calculate it and that is-simple interest = principal amount x rate of interest x loan tenureNow let's take for example that thePrincipal amount= 50,000Simple interest= 8%Loan Tenure= 1Then you will have to pay Rs 4,000 as interest and the overall payment amount will be Rs 54,000What is a compound interest loan?A compound interest loan is a loan where the interest rate is calculated based on the principal amount plus the accumulated interest of the previous periods. The formula to calculate compound interest isa = p(1+r/n)nta= amountP = principal balancer= interest raten= number of times that interest compounds per yeart= tenure of the loanWhat is the difference between simple interest and compound interest?In simple interest, the interest is accrued on the principal amount borrowed or invested whereas, in compound interest, the interest is accrued on the principal amount plus the accumulated interest of the previous periods.Home loan interest rate is compound interest and not simple interest as you pay interest on the principal amount plus the interest accrued.Read More:Last 10 years home loan interest rates in IndiaDoes home loan interest change for existing customers?What is the home loan interest Rate for Bank Employees?How to reduce HDFC home loan interest rate?
The fact that the interest rate for home loans is compounded interest rather than simple interest is crucial to keep in mind. In other terms, you don’t pay interest solely on the principal amount, but you pay interest on the principal amount plus the interest collected.It is crucial to pay attention to the frequency of compounding with compound interest. For example, the monthly compounding of the home loan interest rate results in interest payments for both the principal and the interest accrued each month. In conclusion, the EMI payments you must make and the potential cost of your entire housing loan depends on the interest rate of your home loan.
What is a simple interest loan?
The principal amount borrowed is the basis for calculating the simple interest loan. The amount you will owe the lender over and above the principal amount is indicated by the term interest. You can use the following formula to determine the simple interest:Simple interest = Principal Amount x Interest Rate x Loan Term.
What is a compound interest loan?
The principal sum plus the total interest earned from previous periods are the two components used to calculate compound interest. So, when taking out a loan with compound interest, you are essentially paying interest on the interest if you compare compound interest to simple interest. In the situation of compound interest loans, the interest can compound either daily, monthly, quarterly, twice yearly, or once a year.Is home loan simple or compound interest must be clear to you now.Read More:Does home loan interest change for existing customers?What is a home loan balance transfer?What is a home loan process?What is a home loan top-up?
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Is Home Loan Simple or Compound Interest?
Vivek
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March 17, 2023
2023-03-17T10:28:27+00:00 2023-03-17T10:48:04+00:00Comment
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