Wrong emi calculation
Kalyan Ghosh
(Querist) 24 May 2016
This query is : Resolved
Sir,
Will you kindly help me?I need your cooperation,Whenever the EMI increases due to increase in rate of interest etc it takes immediate effect.But when it decrease due to our prepayment etc the company always delays a lot unless forced.Please go through the following
My son had taken a loan of Rs 3000000 from one HFC some 5 years back.As he paid off against principal outstanding balance from time to time he had some Rs 910961 to paid in 19 more installments at 9.5% ROI.His EMI was Rs 51831 accordingly.However he again paid back Rs 298988 and opted for 13 more installments to totally pay off the loan.After paying this Rs 298988 as on 1st May he has to pay back Rs 910961- Rs 298988 equal to Rs 611973 to be paid off in 13 more installments at 9.5% ROI.As per all home loan Amortization calculator the EMI is Rs 49725.But HDFC is still charging Rs 51831(last EMI value before paying off Rs 298988,)still now and they are not reducing the EMI .The arithmetic formulae used to calculate EMI was also given to HDFC.By HDFC method one is to loose a total of Rs 27378(EXTRA EMI OF Rs 2106X13 Months=Rs 27378) against interest value. Please offer your suggestions to arrive at reality.
IN THE LAST MONTH of the Amortization Schedule THE INTEREST COMPONENT(Always Decreasing Interest Method) HAS SHOOT UP TO Rs 28903.Last but one month interest will be only Rs 567 .HOW AND WHY?
TOTAL ACTUAL INTEREST IN 13 MONTHS=Rs 34448 HDFC TOTAL INTEREST IN 13 MONTHS=Rs 61830
EMI FORMULA WHICH IS KNOWN TO EVERYBODY
EMI = [P x R x (1+R)^N]/[(1+R)^N-1], where P stands for the loan amount or principal,(P=611973) R is the interest rate per month [if the interest rate per annum is 9.5%, then the rate of interest will be 9.5/(12 x 100)], and N is the number of monthly instalments.(N=13) .By simply putting these values in the formulae EMI comes out to be Rs 49725 and NOT R s 51831.
Please offer your suggestions to arrive at reality and help.HDFC is never saying that extra amount will be refunded.THE AMORTIZATION SCHEDULE DOES NOT SHOW ANYTHING ABOUT THE REFUND
P. Venu
(Expert) 25 May 2016
You can take up the matter with the higher authorities of the Bank or the Banking Ombudsman.
Kumar Doab
(Expert) 25 May 2016
>>> RBI has issued directions;
RBI/2011-12/589
DBOD. No. Dir. BC.107/13.03.00/2011-12
June 5, 2012
"It has, therefore, been decided that banks will not be permitted to charge foreclosure charges/pre-payment penalties on home loans on floating interest rate basis, with immediate effect."
>>> You may clarify you have borrowed from M/s HDFC or M/s HDFC bank Ltd?
Kumar Doab
(Expert) 25 May 2016
You may also go thru advertisement by M/s HDFC bank at its website and relate with your case:
To prepay or not to prepay?
"Given the Indian aversion to debt, it is hardly surprising that many loan owners are eager to prepay their loans as and when their finances look up. However, this is not always the most economical option and one should consider various factors before deciding on this course.
What is prepayment?
When a borrower pays off his/her loan entirely or in part before the defined due date, it is termed as prepayment.
When considering prepayment, borrowers need to ensure that they factor in the following aspects:
Prepayment penalties
Prepayment penalties vary from one financial institution to another, and often, even from loan to loan. These penalties are either charged at a flat rate, or at a certain number of months’ interest. Even if the loan contract does stipulate a prepayment fee or penalty, a loan owner must first compare this amount against the overall interest he/she will save in terms of interest. Also, in some instances, the prepayment is made possible after a minimum stipulated period of loan ownership. To make sure they are able to capitalise on these provisions, borrowers must first carefully read their contract or talk to their borrower at length.
Actual savings
Loan owners often presume that because they have already paid a substantial number of EMIs, the interest component is much lower, and it hence makes little sense for them to prepay the loan amount. The truth, however, is that the borrower pays the same interest for the unpaid principal amount, since the interest is calculated using the reducing balance method. When considering prepayment, borrowers should hence consider the prevailing interest rate, rather than the loan tenure.
Whether or not to prepay your loan depends on many factors such as the stage of loan payment you are at, the interest rate, and the prepayment charges. An analysis of these elements is a must before you decide to take action.
"
Kumar Doab
(Expert) 25 May 2016
You may also go thru:
http://www.nhb.org.in/Regulation/Policy_Circular.php
36. NHB(ND)/DRS/POL-No-36/2010 Pre-payment penalty on pre-closure of housing loans October 18, 2010
43. NHB (ND)/DRS/Pol. No. 43/2011-12 Pre-payment penalty on pre-closure of housing loans 19th October 2011
48. NHB (ND)/DRS/Pol. No. 48/2011-12 Pre-payment penalty on pre-closure of housing loans- Clarification April 9, 2012
and others and relate with your case.
Rajendra K Goyal
(Expert) 25 May 2016
Banking companies and financial companies generally adopt different contract agreements.
In most of the banks, periodical interest is added in the total outstanding and any amount paid is credited in total outstanding. In this system any extra amount / more than EMI paid would provide interest benefit to the borrower.
Financial companies adopt different accounting, may be attractive at initial stage but hidden charges may be more.
You should go through the contract documents in detail.
approach consumer forum in case of any discrepancy.
