Your Questions About Home Loan Interest Rates

Ken asks…

interest rate for home loans – chennai – is this how it works?

how is the interest rate for home loans calculated with nationalized banks..

let us say

i have taken a home loan of 50 lacs at the rate of 9.5% for 15 years..

then my understanding is

my monthly interest would be

50,00,000 *(9.75/12*100) = Rs 40625

is this correct

John answers:

The calculation you have given is correct, but only for the first month. As you will be paying EMI, which will be more than the interest, your principle will get reduced by a small amount. Interest for the second month will be calculated based on this reduced principle.

You can find the EMI related calculation at http://blog.moneyraam.com/2008/04/loan-emis-and-interest-calculations.html

Hope this is of help.
– Ripul

Laura asks…

interst rates on home loans?

will interest rates be good this yeafr on home loans ike on a 30 year fixed mortgage

John answers:

Actually 2 weeks ago they were lower than the arm rates….

Shot me an e-mail

Sharon asks…

Interest on Home loan?

If i take home loan of 300000 , i heard that the interest is close to one thousand for every one lac taken..so assuming iam paying 30000 for 3 lac..does it include the principal or only interest..?i need for maximum tenure ..pref with fixed Interest and not floating..

John answers:

Generally if you borrow $300,000 over a 30 year term at ‘standard variable’ interest rates you will in effect repay $600,000 by the end of the term (Principal & Interest). To lessen the cost many investors take out ‘mixed’ principa & interest loans or ‘interest only’ loans, as here in Australia only the ‘Interest’ component & establishment fees are tax deductible.

Richard asks…

Why aren’t you creating manufacturing jobs! Freeze interest rates on credit cards and home loans at say 3%?

The oil companies, and banks make BILLIONS! They justify it by saying they need more money to grow. This country grew by people investing their own money and taking the risk. Big business want us to pay for their risk! That is wrong. If you freeze interest rates people will have more money to spend on other items. Your always taxing the average citizen, go after the big money!!! Fix gas rates. At one time in our history these things were that way.

John answers:

The bailouts injected a lot of money into the banks because they were insolvent. It’s not a liquidity issue like they say, they are insolvent. The low interest rates are part of the problem, it’s low interest rates for the guys on the top and higher interest rates for those on the bottom. The problem is that the interest rates have been kept too low causing systemic risk. Banksters and people gambled on homes they cannot afford, credit cards that got maxed out and rolled over at 0% and took out home equity loans to pay for vacations and flat screen TV’s. More of the same, will not get us out of this mess. The interest rates are going to remain low for the top users and the banks because higher interest rates will cause the Big Banks, the Federal, State and Municipal Governments to go broke, go under and/or default. They will do that eventually, but only after Trillions more in bailouts leading to high inflation. When starving people fill the streets of the US demanding change, only then will we see any. There is no easy way out for them, the powers that be are going to kick the can down the road because anything else will take power away from them and they don’t want that.

Mary asks…

Interest rate & cash rate?

For question sake, if the interest rate for a home loan with a bank is 9.3% and the cash rate set by the RBA is 7%, does this mean 7% goes to the RBA and 2.3% goes to the bank?

John answers:

No. The RBA influences interest rates by buying and selling Government securities. This essentially means that they pretty much dictate the base interest cash rate for both saving and lending.

A bank with a home loan rate of 9.3%, keeps all the interest earned (i.e no interest is paid to the RBA).

So you will notice that if interest rates go up, banks get more money from people with their loans, but need to pay out more money to people who have savings accounts with them.

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