I Don't Understand Loans, Help!

[pepamint_L 0]

I need to apologise first for my ignorance..

I tried reading up on home loans and found this website: http://www.smartloans.sg/pages/types-of-mo...es-and-features

Is HDB home loan considered "Capital and Interest Mortgage"?

For other types of loans, the interest rate is then based on the principal amount which is decreasing every month as I repay the loan?

Could someone enlighten me? I am confused?

[jawskie 0]

I think it's easier to go through a broker.

When I did my home loan, I went through a broker who got the best rates for me. And I didn't have to pay her because her commission comes from whichever bank I eventually got a loan with.

If you'd like, i have her contact. She will duly explain what home loans are about.

I need to apologise first for my ignorance..

I tried reading up on home loans and found this website: http://www.smartloans.sg/pages/types-of-mo...es-and-features

Is HDB home loan considered "Capital and Interest Mortgage"?

For other types of loans, the interest rate is then based on the principal amount which is decreasing every month as I repay the loan?

Could someone enlighten me? I am confused?

[jawskie 0]

Hmmm the website you went to is also quite good. I had tried that first and had gotten a reply from only one bank though. But it shows you the comparisons well so you know which banks are indeed offering the better rates first.

[bepgof 20]

I need to apologise first for my ignorance..

I tried reading up on home loans and found this website: http://www.smartloans.sg/pages/types-of-mo...es-and-features

Is HDB home loan considered "Capital and Interest Mortgage"?

For other types of loans, the interest rate is then based on the principal amount which is decreasing every month as I repay the loan?

Could someone enlighten me? I am confused?

Need not to apologise for ignorance, even a professional accountant also "see stars" over interest rate, capital, present value, future value, period.....& get confused too.

Existing Singapore's car loan, reno loans, etc are using "flat rate" which is quite different from home mortgage loan. Basically, mortgage loan uses "comppund interest" calculation, period = 12 months.

"Capital & interest mortage", as its name implies, it is the "core" for all mortage loans of fixed, or variable interest rate calculation. In other words, there are only:

- fixed, or variable (minimum period = 1 month) mortgage loans.

HDB mortgage loan has been maintained at 2.6% for quite some years, which can be considered as "fixed mortgage loan".

Has to use PMT financial function to calculate the monthly instalment amount based on

- prevailing interest rate,

- existing outstanding amount,

- instalment periods, in term of month

So, monthly instalment = monthly intestest (reducing from each period) + monthly payment toward principal(increasing each period). Period = 1 month. Such that the monthly instalment amount to hold fixed for 12 periods (Jan to dec)

*** Monthly interest for each period is computed based on outstanding amount at "n" period. So it is different everymonth, unlike the "flat rate" method.

Edited December 13, 2010 by bepgof

[pepamint_L 0]

Need not to apologise for ignorance, even a professional accountant also "see stars" over interest rate, capital, present value, future value, period.....& get confused too.

Existing Singapore's car loan, reno loans, etc are using "flat rate" which is quite different from home mortgage loan. Basically, mortgage loan uses "comppund interest" calculation, period = 12 months.

"Capital & interest mortage", as its name implies, it is the "core" for all mortage loans of fixed, or variable interest rate calculation. In other words, there are only:

- fixed, or variable (minimum period = 1 month) mortgage loans.

HDB mortgage loan has been maintained at 2.6% for quite some years, which can be considered as "fixed mortgage loan".

Has to use PMT financial function to calculate the monthly instalment amount based on

- prevailing interest rate,

- existing outstanding amount,

- instalment periods, in term of month

So, monthly instalment = monthly intestest (reducing from each period) + monthly payment toward principal(increasing each period). Period = 1 month. Such that the monthly instalment amount to hold fixed for 12 periods (Jan to dec)

*** Monthly interest for each period is computed based on outstanding amount at "n" period. So it is different every month, unlike the "flat rate" method.

Ah....let me check whether my understanding is correct.

Assuming HDB continues with this 2.6%, my loan period is 30 years (360 months), and loan amount is M.

So my monthly payment is more or less the same at (1.026 x M)/360. Is this fixed mortgage also referring to flat rate method?

As for the normal loans from banks (unless explicitly stating its fixed mortgage), my monthly payments would vary. according to that month's interest rate (if under floating rates), and outstanding loan amount (which should reduce as the months go by).

Is this correct?

[bepgof 20]

Ah....let me check whether my understanding is correct.

Assuming HDB continues with this 2.6%, my loan period is 30 years (360 months), and loan amount is M.

So my monthly payment is more or less the same at (1.026 x M)/360. Is this fixed mortgage also referring to flat rate method?

As for the normal loans from banks (unless explicitly stating its fixed mortgage), my monthly payments would vary. according to that month's interest rate (if under floating rates), and outstanding loan amount (which should reduce as the months go by).

Is this correct?

Wrong !

Fixed rate is not equal to "flat rate".

Flat rate:

P= principal

I=interest

Yr= # of year

P= period = # of yearx12

monthly payment = interest(fixed) + payment towards principal(fixed)

= (PxIxYr)/Period + P/period

For compound interest rate cal (very complicated, need software)

If M=100,000

I = 2.6%

period = 360

monthly instalment = 400.34 (1st payment)

Interest portion = 216.67

Payment toward principal = 183.67

monthly instalment = 400.34 (36th payment)

Interest portion = 202.21

Payment toward principal = 198.13

Edited December 13, 2010 by bepgof