5 Simple Steps to Calculate Rate on your Property Loan

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Interest payments often form the largest component of repayment of a loan, especially during the early period. A long tenure loan may see a larger outlay in form of interest payments from a borrower. This would form a substantial component of the overall loan amount. Although the rate of interest is mentioned in all the loan documents, certain borrowers might require more clarity about how the interest rate on a property loan can be calculated.

loan against property
loan against property

This is how the interest rate on your loan can be calculated easily:

1. Know the period and principle:

Interest can easily be calculated using the formula of r = I/Pt wherein I is the interest paid, P is the principal and t is the period. It is pertinent that the period for repayment be known otherwise the calculation of Interest would turn out to be incorrect due to the difference in consideration of the period. The period, principal amount, and the interest paid are the vital components that form the rate of interest charged by a lending institute. Low principal payment and high-interest payment would mean a higher interest rate, as well as vice-versa, would also hold true.

2. Convert it to percentage form:

The interest rate found out above can be converted into percentage form by multiplying it by 100. This would provide an interest rate in percentage form which can be reviewed by an individual against the property loan calculator to verify whether the interest being paid is the same as the interest that was proposed during the onset of the contract. A floating rate interest rate might change depending on the prime lending rate. Calculation of interest on regular intervals can help a person verify whether the impact of change in the prime lending rate especially on fall of the rate has been provided by their lending institution or not. 

3. Use MS Excel or a Spreadsheet application:

Spreadsheet application
Use MS Excel or a Spreadsheet application

The interest rate on loan can also be easily calculated using spreadsheets or Microsoft excel. A loan against property has fixed terms and conditions that are signed at the onset of the contract. An individual can not only find out the interest rate using the use of excel formulas but can also recreate the entire schedule of repayment of a loan through the information available. The loan schedule will have details like interest payable, period, as well as principal repaid using which an individual can calculate the rate of interest sitting at their own home or office with ease. 

4. Online calculators:

Online calculators
Online calculators

Most lenders provide online calculators on their websites which can be used by prospective borrowers to verify the rate of interest and calculate the estimated EMIs. Apart from websites of lenders, there are other websites as well which enable prospective borrowers to calculate the rate of interest. Through online calculators, an individual can even change various combinations to find out interest rates under different scenarios. 

5. Ensure that all parameters are the same:

rate of interest
rate of interest

The rate of interest is dependent on a lot of parameters. It is pertinent that while calculating the rate of interest for a loan against property using a property loan calculator, the input amounts are proper. This means that if the monthly rate is to be calculated, all the parameters including the principal, period as well as interest paid must be on a monthly basis to provide a proper result. An error in any of the parameters would provide an incorrect measure for the person and may not be able to aid them.

A loan against property would be a big step for many borrowers as they look to mortgage their property either to support their business or for any other means. Since the interest payment is a large component of any loan, a prospective borrower must be aware of the exact interest rate being paid by them. Due to the floating nature of the interest as well as the decline of interest on repayment of principal, the rate of interest would change on a progressive basis. An individual can calculate the rate of interest using the above methods and understand the cost of capital that is being paid by them. This would enable better decision-making and aid them in the future while taking a new loan.

Also read What are the 10 Effective ways to save money for investment?

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