How to calculate the interest rates of housing loans?

How to calculate the interest rates of housing loans?

calculate-interest-rateWhen getting a loan to finance your dream house or for any property, one of the biggest concerns that you and also many others have is the loan interest rate that the bank offers. But with so many banks and each of them offering different kind of rates, it can be pretty confusing at times.

I’m sure no one wants to end up getting a loan with sky high rates and yet to physically going through bank by bank just to enquire on these rates can be quite troublesome and time consuming. If these are exactly your sentiment, then why don’t you do your own calculations with the mortgage calculator that will be provided below?
Before we start, you must first know that the two most commonly used ways of calculating loan’s interest are the Reducing Balance Method and the Flat Interest Rate Method. Therefore, make sure which method is being used before you go on board on any loans.

a) Reducing Balance Method

Interest rate per instalment x Remaining loan amount = Interest Payable per Instalment

This way of calculating is normally use to count the interest payable for mortgage loans, credit cards, or overdrafts (OD) facilities. What matters is the remaining loan balance as you only pay your interest based on that.

The same interest rates being used for Fixed Deposit (FD) and Savings Accounts is similar to the Effective Interest Rate which is what is being quoted for loans such as these.

b) Flat Interest Rate Method

(Original loan amount x number of years x Interest rate p.a) / Number of instalment = Interest payable per instalment

Personal loans or car purchase loans usually use this method of calculation to determine the payable interest. The interest you pay is fixed on the entire loan balance throughout the duration of the loan.

And because of it, this is less beneficial for the borrowers as even if you pay down the loan, the interest that you will be paying will not lessen.

In general, flat interest rates range from 1.7-1.9x more when converted into the Effective Interest Rate equivalent. Therefore, the accurate measure of your financing cost is only revealed after this conversion.
As another word of caution, do make sure which method is being used by the bank of your preference before you decide on the loan. And hopefully with these simple guides to calculating the loan’s interest, you are saving time and effort in trying to decide which bank is offering the home loan that is best in catering your needs.

If you want to find the latest interest rate from various banks in Malaysia, we have an online housing loan calculator for you,  please click here to visit .

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