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A home loan is the amount of money as a personal loan from a financial institution, such as a housing finance company, to build a home, modify an existing home, or expand it. The funds are borrowed at a certain interest rate and repaid in EMIs(Equated Monthly Installments), within a predetermined time frame. Microsoft Excel can help us to calculate the total amount that goes for interest to calculate a home loan. This calculation can guide you to different techniques. Some of them include fixed interest rates and others with floating interest rates. All the methods have step-by-step instructions with a figurative description.
Following is an image where you can see the methods of how you can easily calculate home loan interest in Excel for a given dataset.
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Download the Excel file below.
What is the Formula for Home Loan Interest Calculation?
The present age and income profile are key factors in home loan eligibility. You can find the total interest for your loan amount using various online sites to calculate a home loan with an adjusted loan period and interest rate. The loan’s distribution date and the first repayment date can affect the EMI amount. Manually, we can determine the interest amount for each of the payments made and get a summation of all the amounts. We can deduct the loan amount from the total paid amount to get the interest amount.
The formula for simple home loan interest is stated below.
Learn to Calculate Home Loan Interest in Excel with These 4 Approaches
The article is going to introduce four ways to calculate home loan interest in Excel. The following discussion will introduce a Custom Excel Formula to manually calculate the total interest amount. It will cover the uses of the CUMIPMT, IPMT, and PMT functions for the same purpose as well. Therefore, users will get a walkthrough of these solutions. You will find a dataset to modify in the following methods below to help you understand.
1. Create a Custom Excel Formula for Calculating Home Loan Interest
To calculate home loan interest, we can manually create a custom Excel formula. Apart from using built-in functions, this method helps us to calculate the interest amount automatically. This method is applicable to fixed-interest home loan schemes.
⬇️⬇️ STEPS ⬇️⬇️
- To begin with, select cell D8 and enter the following formula for the cell.
🔨 Formula Breakdown
B6*C6*D6
👉 Here, B6, C6, and D6 represent loan amount, interest rate, and period (in years) respectively.
- Finally, you will get the total interest amount in the process to calculate a home loan in Excel.
📕 Read More: 6 Steps to Create Car Loan Calculator in Excel Sheet
2. Determine Home Loan Interest Utilizing CUMIPMT Function
The CUMIPMT function is a convenient function to calculate the cumulative interest amount paid on a loan. Unlike the previous method, the CUMIPMT function determines interest based on floating interest rates. The calculation depends on the interest rate, total payment number in periods, and loan amount in present value along with the start and end value in periods.
⬇️⬇️ STEPS ⬇️⬇️
- Initially, create a table for start and end periods for each year individually.
- We set the year value from 1 to 7.
- Next, type 1 and 12 under the Start and End columns for 1st year-end.
- Then, select cell C10 and enter the following formula.
Here, cell C9 will bring the next payment period adding the compound period per year, that is 12.
- Then, using the Fill Handle icon, copy the formula from C10 to C15.
- After that, drag the Fill Handle icon in the same way from C15 to D15. It will get the following formula for cell D10.
- Here, select cell E9 and enter the following formula.
🔨 Formula Breakdown
-CUMIPMT($C$6/12,$D$6*12,$B$6,C9,D9,0)
👉 Here, C6 is the yearly interest rate. Dividing it by 12 returns the monthly interest rate.
👉 D6 is the year value. Multiplying it by 12 gets the total period in months.
👉 B6 brings the loan amount.
👉 Next, C9, and D9 return the start and end period numbers for a specific year. Also, 0 returns the result for year-end interest.
Finally, we get $3,799.34 as a result.
- Now, use the Fill Handle icon to copy the formula to cell E15.
- Next, select cell E17 and enter the following formula.
🔨 Formula Breakdown
SUM(E9:E15)
👉 Here, the function adds values from cell E9 to cell E15.
Moreover, you will get $15,462.10 as a result.
📕 Read More: 2 Easy Ways to Calculate Gold Loan Interest in Excel
3. Applying IPMT Function for Calculating Home Loan Interest
By manually multiplying the outstanding balance by the period’s interest rate, the interest component of a loan payment can be determined. However, there is a unique function for this in Microsoft Excel called IPMT. The IPMT function returns the interest payment for a particular loan term for a loan amount based on periodic, constant payments and a fixed interest rate.
The IPMT function is dependent on the interest rate per period, period frequency, the total number of payments, and loan amount. Unlike the second method, you don’t need to mention any start or end period value and also can get more detailed calculations than before.
⬇️⬇️ STEPS ⬇️⬇️
- Firstly, select cell C9 and enter the following formula.
🔨 Formula Breakdown
-IPMT($C$6/$E$6,B9,$D$6*$E$6,$B$6)
👉 Here, C6 is the yearly interest rate. Dividing it by the month factor, E6 returns the monthly interest rate.
👉 B9 is the period value.
👉 D6 brings the period in year. Multiplying it by the month factor, E6 returns the total period number.
👉 Next, B6 is the loan amount.
Finally, we get $333.33 as a result.
- After that, use the Fill Handle icon to copy the formula to cell C20.
- Now, copy the cell range C9:C20 using Ctrl+C.
- Then, paste on cell range E9:E20 using Ctrl+V.
- Now, select cell D21 and enter the following formula.
🔨 Formula Breakdown
SUM(C9:C20,E9:E20)
👉 Here, the function adds values from cell C9 to cell C20 along with cell range from cell E9 to cell E20.
Moreover, you will get we get $4,272.75 as a result.
📕 Read More: 2 Approaches to Calculate Interest Between Two Dates in Excel
4. Employing PMT Function
The PMT function is widely applicable to financial datasets. It calculates the interest payment for a loan based on EMI and a constant interest rate. The function depends on the interest rate, total payment number, and loan amount. The previous three methods prioritize detailed calculation, whereas this method is for precise step-by-step calculation, which isn’t much detailed.
⬇️⬇️ STEPS ⬇️⬇️
- Initially, create a table to individually calculate the total payment number, the payment amount for each period, the sum amount of total payments made, and interest cost respectively.
- Now, select cell D8 and enter the following formula.
🔨 Formula Breakdown
D6*E6
👉 After that, D6 and E6 represent the period (in years) and payments per year respectively.
Here, we get 84 as the total number of payments
- Then, select cell D9 and enter the following formula.
🔨 Formula Breakdown
-PMT(C6/E6,D8,B6,0)
👉 Here, C6 is the yearly interest rate. Dividing it by the payments per year, E6 returns the monthly interest rate.
👉 Also, D8 is the total payment number that you determined previously.
👉 Next, B6 is the loan amount. Again, 0 represents the calculation after the period.
Then, we get $779.31 as a result.
- Now, select cell D10 and enter the following formula.
🔨 Formula Breakdown
D9*D8
👉 Here, D9 and D8 represent payments for each period and total payment number respectively.
Now, we get a sum of the payment amount by multiplying the payment for each period with the total payment number.
- Then, select cell D11 and enter the following formula.
🔨 Formula Breakdown
D10-B6
👉 Here, D10 and B6 represent the sum of payments and principal loan amount respectively.
Finally, we get a sum of payments by multiplying the payment for each period by the total payment number.
📝 Takeaways from This Article
The article lets the readers understand the variety of options available to calculate home loan interest in excel.
📌 Primarily, you can use a custom formula to calculate home loan interest in Excel. This method is applicable to fixed-interest loans.
📌 You can also try the CUMIPMT function to get specific interest amounts for each year.
📌 Here, the IPMT function is also available for detailed interest calculation. You can use the method for other payment frequencies such as weekly, quarterly, etc.
📌 Finally, the PMT function can directly calculate your interest rate considering your payment frequency, interest rate, timespan, and loan amount.
Conclusion
To calculate home loan interest in excel, you can use a Custom Excel Formula to manually calculate the total interest amount. The uses of the CUMIPMT, IPMT, and PMT functions are applicable here as well. In case of further queries, readers are requested to leave a comment for the author. The author will try their best to come up with a suitable solution. Follow ExcelDen to get more access to solutions regarding your Excel problems.
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