How to Calculate Your Monthly Home Loan Installments
Lets say you found a house you`ve been dreaming of, and have decided to buy it. You will most likely have to apply for a home loan in order to do this. Now, you might be wondering what will the monthly installment rate for your new home be. No worries, as today you can calculate you monthly home loan installment rates with ease. There are many loan calculators, which you can find at the websites of crediting companies from South Africa. They will help you calculate the monthly installment for your home loan.
The Components of a Loan Installment
The monthly loan installment is based on a few components and they are the following:
- The base installment. It includes the base capital, and the interest payments
- Monthy administration costs.
- Insurance premium for homeowners
- If applicable, life insurance premium.
- How is the Rate Calculated
Interest rate on your home loan is calculated on a daily basis, and added to the outstanding capital base on a monthly basis. There is also what is known as a “home loan base rate”. This is the rate that most people pay for their home loans. It is related to the prime rate. You should always try to negotiate, and look around at different financial institutions before you decide for a particular one. Also, keep in mind that most banks will take into account if you are already using their services, such as having a bank account, or a credit card. These might apply you for an interest rate reducement.
Over What Period Are Home Loans Repaid
Most financial institutions will offer you home loans on a period of 20 years. Of course, there are other options, like paying it over 25 or 30 years, however the interest rates for these period of repaying are considerably worse. In the end, you end up paying a lot more that way, although your monthly installments will be smaller. If you are interested, how big of a loan can you get, you should be informed that the monthly installment of your home loan can not exceed 25% of your monthly gross income. That is however only in the case that you are applying for a home loan as an individual. If you are applying with your spouse, you can get up to 30% of your joint monthly income. The point of this is the affordability for the loan.
The Other Fees
Monthly administration fee will differ from bank to bank, but generally isn`t something to worry about too much. The insurance premium is something that you must have in order to get a home loan. Probably the best course of action is to take this insurance at the same bank in which you are taking your home loan, as it is likely to give you the best rate on it. And finally the life insurance fee is charged if you take a life insurance in order to cover for the installments of your home loan in case of your death. Many banks will ask for this.
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