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| Question |
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How are bank interest rates calculated on home loans?
A friend's son has borrowed the amount of his mortgage from his step father and they are trying to calculate the interest. They know the rate but how is it calculated per month?
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| By
ozichick1 |
Posted on
02/19/08 Total Answers
5 |
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| Answers- |
| The easiest way is to use a financial calculator. If you know the "sales price", the "term of the loan" (number of years) and the payment amount of the loan, you can calculate the rate of interest that is being charged by the lender. If you would like me to calculate this out for you, just post the above mentioned figures. |
| Answer by :
Steve W On Date
2008-02-19 14:12:58 |
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| Assume the annual rate was 6.00%. Every month the interest is calculated on the outstanding balance. The interest rate per month would be 6.00%/12 or 0.50%
A $200,000 loan would require an interest payment of $1000 the first month.
If the loan was "amortized" over 360 months, the first month payment would be $1199.10 ($1000.00 interest and $199.10 to principal). The new loan balance would be $200,000 - 199.10 = $199,800.90. The 2nd month interest would be 0.50% of $199,800.90 or $999.00. After the $1199.10 payment was made, the new loan balance would be $199,600.80 ($199,800.90 - $1199.10 payment + $999.00 interest). |
| Answer by :
RONALD E B On Date
2008-02-19 14:21:49 |
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| Steve W: Please READ the question. They KNOW the rate. The need the AMOUNT of interest.
There are SEVERAL on-line calculators that will do all the math for you. Bankrate.com is one of them. If you have a spreadsheet, such as MS Excel on your computer, there is probably a template for an 'amortization table' available. |
| Answer by :
STEVEN F On Date
2008-02-19 14:37:55 |
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| With a fixed rate mortgage, they will see/find that the dollar amount of the interest goes down every month.
1. To answer your question, monthly interest = (interest_rate/12)*PRINCIPAL
Example: 6% yearly interest for a $100,000 loan. Interest = (.06/12) * 100,000 = $500
The info above answers your question. more info below:
2. For any conventional home mortgage, the monthly payment will exceed the interest amount; the amount over and above interest gets applied to principal. Example, same assumptions as above, and add that monthly paymentsare set at $600. That means that for the first payment of $600, $500 is applied towards interest and $100 is applied towards principal. That also means that the principal amount for month two is $100 less, at: $99,900. Multiplied times the monthly interest rate (.06/12), the amount of interest is slightly lower than the previous month. This effect leads to ultimate "amortization" of the loan (bringing the principal down to zero)
3. The amortization schedule is basically the same as the loan term: ("30 year loan", "15 year loan"). As you can guess, your payments per month must be higher to retire the loan.
More info than you asked for, but might as well get the whole package as your question is related to all sorts of others! |
| Answer by :
Rithy On Date
2008-02-19 15:07:18 |
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| Unless you have a fixed-rate mortgage, the current mortgage interest rates are very important to deciding how much you should pay every month<!--therefore it is always a good idea to keep an eye on what the rates are doing. If interest rates should rise, so will your monthly payments and again, if interest rates were to fall, so would the amount you would have to pay.
http://mortgage-loans.awardspace.com/
Monthly repayments made on your mortgage and the amount that was borrowed, is determined by current mortgage interest rates. Different-->companies offer different interest rates so it is a good idea to shop around for the best deal before settling on one particular lender. |
| Answer by :
Oliver D On Date
2008-02-19 19:01:26 |
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