Friday, October 12, 2007

Which interest rate to choose -Floating or Fixed Rate?

Considering the present interest scenario, go for Floating rate interest rates. Interest rates have peaked and so we may see cut in interest rates. Inflation is at 5 year low which is a good sign for interest rates to come down.

Monday, September 10, 2007

Calculate EMI

Every one of us needs loan for some purpose or the other. Personal loans, Home loans, Auto loans are some of the loans that are common.

The key aspect in this is the EMI that we pay.

Remember that Diminishing rate and Flat rate differ. If you take $1o,000 at say 5% flat the interest you pay is $500 if it is flat rate but if it is diminishing rate you pay much less because some of your monthly payment reduces the borrowing amount.

How to calculate the EMI and how to verify that the interest the bank is charging for you is correct and the EMI you are paying is according to the interest rate you are paying.

It is very simple. Microsoft Excel provides the required information for us to calculate. All you need is to input data in the excel sheet.

1. Now Go to Excel and in Functions (look for Fx button or insert functions from the menu) go to Financials and Select PMT fucntion.

2. Now input data. If your interest rate is say 5% then enter 5 / 1200 because it is 5 percent per annum ie 5/100 by 12 for you need to make it monthly interest rate

For Nper please enter the number of installments or EMI you would like to repay it. It can be 36 or 48 or 120 depending on the loan tenure.

For PV enter the loan value you are taking ie example $10,000 or $50,000
For Fv enter as 0 or the amount you would like to pay back. Generally it will be 0 as everyone would like to pay the entire amount.

For type enter 1 if you start EMI immediately after the loan is processed. Usually banks start your EMI after one month so enter 0 or leave it blank.

Now after all your data you get your EMI for diminishing rate.

Example : EMI for $100 K for 36 Months at 10% diminshing rate

Rate will be 10/1200
Nper will be 36
PV will be 100,000
Fv will be 0
type will be 0

EMI will be $3,226.