How to calculate the interest rate when borrowing 1 billion at the bank

Currently at banks, with a red book mortgage loan interest rate of 1 billion interest will be calculated monthly as follows:

1. The interest rate is calculated according to the original fixed rate.
2. The interest rate is calculated based on the declining outstanding balance.

Calculation according to the initial fixed level

• Total monthly payment = Interest payable monthly + Total principal payable to the bank.
• 1-month interest = initial loan x% interest rate.
• Principal paid to the bank = initial loan amount / loan number.

Example: Customers borrow 1 billion in 10 years with a fixed interest rate of 1% / month (equivalent to 12% / year). Thus, in particular each month:

• You will have to pay the interest amount: 1% × 1,000,000,000 = VND 10,000,000
• The principal you have to pay to the bank: 1000,000,000 ÷ 12 months = VND 8,333,333
• Thus, the total principal + interest payable monthly is 18,333,333 VND (> 18 million 3).

Calculating according to gradually reducing outstanding debt

The monthly interest payable when borrowing a mortgage of 1 billion, the monthly fixed interest rate is 1% for a period of 120 months (10 years), then the interest rate is:

First month to pay:

• Interest = 1% × 1,000,000,000 = VND 10,000,000
• Principal = 1,000,000,000 ÷ 120 months = VND 8,333,333
• Total interest + principal = 10,000,000. + 8,333,333,333 = VND 18,333,333

Second month to pay:

• Interest = (1,000,000,000 - 18,333,333) × 1% = VND 9,816,666 (decrease over the first month).
• Principal = 1,000,000,000 ÷ 120 months = VND 8,333,333
• Total interest + principal = 9,816,666 + 8,333,333 = 18,150,000 (decreased over the first 150 thousand months).

Same for the 3rd month until December 120.

You can also see more details on  how to calculate bank loan interest rates  right away to better understand the loan process.