Doubt the bank's calculation on Interest Rate 28 February 2006 at 11:17PM in Mortgages & endowments 1 reply 879 views

qiulong2000

For a home loan, if annual interest rate is y, how much is the interest rate for a month ?
Bank do it as the following equation
x = y / 12
But , x should be calculated with following equation
Pow((1+x),12) = (1+y)
Here, Pow((1+x),12) means (1+x) multiply itself for 12 times
The monthly interst rate is enlarged by the bank !

Please see details on http://loancalculator.mybizcare.com

ronaldmacdonald

qiulong2000 wrote:

For a home loan, if annual interest rate is y, how much is the interest rate for a month ?
Bank do it as the following equation
x = y / 12
But , x should be calculated with following equation
Pow((1+x),12) = (1+y)
Here, Pow((1+x),12) means (1+x) multiply itself for 12 times
The monthly interst rate is enlarged by the bank !

Please see details on http://loancalculator.mybizcare.com

yes, your first example is assuming simple interest, your second assumes compound. i assume mortgages operate on the latter (i.e interest is calculated on capital + interest - but I may be wrong.) :rolleyes: