Unlock Savings: Daily vs Monthly Reducing Balance in Home Loans

Home loans involve long terms with varying interest calculation methods that significantly impact total interest paid. The daily reducing balance method can save borrowers substantial sums compared to the monthly reducing balance method. Borrowers should understand these methods to make cost-effective choices.

For many aspiring homeowners, understanding the nuances behind interest calculation in home loans can be a money-saving gamechanger. The daily reducing balance method, recalculating interest on the outstanding loan amount every day, stands out as a borrower-friendly option.

When opting for this approach, any prepayments made reduce the principal immediately, thereby lowering future interest payments. This can lead to substantial savings compared to the more commonly used monthly reducing balance method, where interest is recalculated monthly, allowing interim prepayments to remain unacknowledged until the next cycle.

Despite the savings potential, Indian banks largely stick with the simpler monthly reducing method due to ease in accounting. Therefore, borrowers should carefully negotiate and verify the interest calculation methods when finalizing their home loan agreements.

(With inputs from agencies.)