Hi Sreekanth,
I have a query regarding home loan EMI interest and principal breakup.
The popular online EMI calculators available show the interest component in an EMI reduce every month. But practically in an SBI home loan, they take the daily balance of principal, calculate the interest and multiply by number of days in the month. So typically in a 30 day month interest component is less than a 31 day month to the tune of 600Rs for a 30L loan of 20 years.
Q1: Does the annual interest paid is equal in both the above cases?
Q2: Is there any EMI calculator available online which calculates the SBI way and provides the breakup?
Thanks in advance for your response
Pradeep
1 Answers
Dear Pradeep,
I believe that most of the online EMI calculators go by monthly reducing balance method.
A borrower’s interest outgo is lowest in the daily reducing method than monthly or yearly reducing methods.
In case of monthly reducing balance, the reduced principal is calculated after each EMI and then the interest would be reworked on the new outstanding balance (reduced balance). Unlike daily reducing balance, under which the repaid principal amount would be adjusted daily and the interest would be reworked based on the previous day’s outstanding balance.
The EMI formula remains the same for both methods.
Kindly go through below article :
Daily reducing balance method
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