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 Mortgage Loan Package Inquiries v2, Loan agents pls read the 1st post!

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silverwave
post Jun 4 2019, 10:52 AM

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Hi, i have a basic question. For a flexi housing loan, if i want to pay more to clear the loan faster, how does the calculation work? Does it reduce the number of years when i pay more? For example, from 35 years to may be 22 years?

silverwave
post Jun 4 2019, 09:28 PM

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QUOTE(lifebalance @ Jun 4 2019, 10:55 AM)
When you took the tenure for 35 years, the bank has also calculated the loan interest into the loan amount you borrowed, so when you made the extra payment every month or one lump sum, it will effectively reduce the interest incurred since your principal loan amount had reduced.

So yes, your loan tenure will reduce overtime as you continue to pay more on top of the installment monthly that you're required to pay to the bank.
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QUOTE(wild_card_my @ Jun 4 2019, 11:41 AM)
Basically you would need an excel calculator for this, but try looking at the way interests is calculated:

daily chargeable interest: [current balance outstanding] x [interest rate/365]
monthly chargeable interest: [current balance outstanding] x [interest rate/365] x [number of days in the month]

As you can see, the [current loan balance] is a function of the interest calculation. When you make a payment into the loan account, and reduce that figure, your chargeable interests are also reduced. Hence when you pay your installments at the end of the month a smaller portion of this installment would be used to pay for the interests, hence a bigger portion used to pay for the capital repayment.

As you perform more capital repayment this month, next month's interests payment would reduce as well. This will cascade all the way until the end of the loan, of which the loan tenure would be reduced automatically.
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Thank you for the detailed explanation smile.gif

 

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