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Financial Literacy Understanding Basic Terms

Fca Proudly Supporting Fiji Financial Literacy
Tuesday, October 31, 2017

How is the interest on your loan calculated?

THE most common interest calculation method in both Fiji and the region is to use a table mortgage methodology.

This is a loan which has a recurring set payment which includes a combination of principal and interest over the term of the loan.

The interest is calculated on a daily balance basis and is debited to your loan monthly.

Thus each progressive payment results in the decline in the principal balance so eventually the loan is repaid in full.

In the early years the payments are mostly composed of interest, but as the amount you still owe begins to decrease, your regular repayment will include less interest and more principal. You can save a lot in interest cost by paying more than the calculated minimum monthly repayment.

Advantages:

* A key advantage of table mortgage is that it contains a set regular payment to be made at a set date which helps customers with managing their cash flow while providing them with the certainty of knowing what and when their payments will be.

* Another advantage is that as the mortgage interest is calculated daily, any early payments or payments larger than scheduled amount will result in less interest cost.

Disadvantage:

* People with irregular income may find it hard to service fixed regular payments.








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