The YES BANK calculates home loan EMI using the monthly reducing balance method. The reducing balance method calculates interest on a reduced principal at the end of each month. As a result, if you pay an EMI (which includes both the principal and interest amount), the principal part is subtracted from the total outstanding. The interest is calculated on the deducted amount. For each EMI, the interest rate is reduced in this manner.
According to this method, the YES BANK Home Loan EMI calculation formula is:
EMI = [P x R x (1+R)^N]/[(1+R)^ (N-1)]
Where,
- EMI is the equated monthly instalment
- P is the principal or the amount that is borrowed as a loan
- R is the rate of interest
- N is the tenure of repayment (in months)
Example: Mr X takes a home loan of Rs. 50 lakh at a reducing balance interest rate of 9% p.a. for 240 months.Monthly interest rate = Annual interest rate/ 12 = 8/12 = 0.75% per month Monthly EMI payout for Mr. B = [5000000 x 0.0075 x (1+0.0075)^240]/(1+0.0075)^(240-1)] = Rs. 44,986
