Calculation of annuity interest in KPR you need to know
In planning Home Ownership Loans (KPR) there is something known as annuity interest as one of the calculation components.
Of course, you have to understand this because in the financing of the house, there are many things that you have to consider. Not only the amount of DP and the tenor of time, the calculation of interest rates is also important.
Annuity calculations are an important part of your decision-making consideration when applying for mortgage payments.
So what are the things related to annuities that you need to understand? This article will discuss starting from the definition, types, formulas, to examples of calculations.
Also read: 4 Types of Mortgage Interest You Should Know
Definition of annuity interest
What is an annuity? In general, annuity interest is a method of calculating interest that emphasizes the number of principal payments plus the interest paid.
This calculation is quite important so that the interest payments are paid the same every month.
Meanwhile, OJK on its official website explained that the interest calculation part will be very large in the initial period, while the principal payment part is very small.
However, towards the end of the credit period, the principal portion will be very large while the interest portion will be small.
This interest calculation is important for you to know if you intend to apply for a mortgage.
Types of annuities
An annuity is actually an interest component consisting of several different types. Here is the explanation:
1. Simple Annuity
A simple annuity is the receipt or payment of interest that occurs at the end of the loan period. An example is the mortgage payment.
2. Deferred annuity
This type of annuity is in the form of deferring payments for a certain period of time after several running periods. So that both interest receipts and payments are deferred.
3. Maturity annuity
The maturity annuity type is one of the most widely used annuity types. The mechanism is carried out at the beginning of the installment period. Examples of an annuity maturity mechanism are when you pay rent, insurance and savings.
4. Immediate annuity
Direct annuities are widely used in consumer credit schemes, such as liability ownership.
The mechanism of this direct annuity is that periodic payments in a certain period of time are made directly without delays of the period.
Advantages and disadvantages of annuity interest
Like other types of interest, annuities also have several advantages and disadvantages that you need to understand, such as the following:
- The calculation of interest is clear and fair.
- Borrowers no longer need to calculate the remaining principal and effective interest.
- Make it easier for customers to pay the installment amount for each period.
- The amount of installments is the same so it does not affect the cash flow.
- Very large interest payments at the beginning make customers feel that they are only paying interest at the beginning of the period.
- Even if the payment amount is fixed, at the beginning of the period the bank pays only the interest. So that at the end of the main period the loan becomes very large.
- Annuity calculations can only be calculated through the system.
The formula for calculating annuity interest
Basically, the annuity formula is to set the amount of principal payments in installments so that the amount paid is the same every month.
In the calculation of the annuity formula, the interest payments in the initial period are given a greater part of the principal issue. However, at the end of the loan period, the principal installment portion becomes very large while the interest portion is small.
This annuity calculation is basically used for long-term loans, such as mortgages or investment loans. There is an annuity formula that is very important for you to know for consideration, as below:
Bunga = SP xix (30/360)
- SP = principal balance of previous month’s loan
- i = annual interest rate
- 30 = number of days in a month
- 360 = the number of days in a year
In addition to this formula, there is a formula that has been developed to obtain a more appropriate value based on the annuity formula, as follows:
P xix [(1+i) x t) / (1+i)t – 1)]
- P = loan principal
- i = interest rate
- t = period credit
Annuity calculation example
To learn how to calculate an annuity, here is an example.
Get a mortgage loan with a loan ceiling of IDR 200 million (P) with a tenor of 10 years or 120 months