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How your loan monthly payments are calculated
Understanding what’s behind the bank rate.
Last day, I came across a post talking about how someone who took a mortgage loan is now suffering to repay his monthly payments because it’s been 15 years now and he didn’t understand the first time the rate he had. And I had this question in my mind: What does the percentage that the bank gives you mean? So I decided to truly understand what’s behind the scene and to know how formulas are created for this topic.
What’s a credit and interest rate ?
A credit is a loan that allows you to finance a project, this project can be a home or a real estate and it’s called mortgage or it can be a good or a service and its called consumer credit. In both cases, the borrower agrees to pay back every period in a known time. In the other hand, an interest rate is an amount that you pay for the entity or person who lends you money, and it’s usually a proportion of the amount lent. For example if you borrow 100$ with an interest of 5% one time, you’re going to pay 105$ to the lender. His remuneration will be then 5$. The value of the different rates are generally regulated by the law.
