Hasty financial decisions devoid of structured analysis can land you in trouble. Home loans are no exception. Borrowing a large sum of money may be the easiest part, thereafter, arranging for the repayments can leave many individuals in a fix. In such a scenario, a home loan EMI calculator could be a beneficial tool in your hands that allows you to analyse home loan EMIs accurately and quickly.
Home Loan EMI Calculator
A housing loan EMI calculator paves the road for manageable loan repayments by showing the EMIs that one needs to shell out every month. It is important to understand the EMI effective on your home loan based on the associated variables like the loan tenor, principal amount and the interest rate. The calculator helps you to assess your repayment abilities and view the break-up of the repayment process before you even apply for a house loan.
Home Loan EMIs
Equated Monthly Instalment (EMI) is the sum of money individuals need to pay their lender on a fixed date each month as repayment for the borrowed loan. Home loan EMI is calculated on the principal amount and the interest charged on it.
EMI = Principal sum + Interest on the principal
Calculation of Home Loan EMI
Housing loan EMI is calculated using the mathematical formula given below:
EMI = [P x R x (1 + R) ^ n] / [(1 + R)] ^ n – 1]
P = Principal loan amount
R = Rate of interest
n = Number of monthly instalments
Computing your EMI with this equation can be a tedious activity, which may consume far too much time and effort with no assurance of arriving at the correct results. A home loan calculator can make this task easier and save you considerable time and worries. You can utilise it to accurately work out your loan calculations within seconds.
Using an Online Home Loan EMI Calculator
Almost all lending institutions offer free access to several online financial tools, including a home loan EMI calculator, on their websites to help potential loan borrowers estimate the payable EMIs. Doing so gives them a clear idea of their housing credit for the entire tenor and equips them to take better decisions. The calculator is fairly easy to use and one can compute the values by simply entering the three components mentioned here:
Home Loan Principal Amount
This is the capital that an individual will borrow from a lender to finance his/her home purchase. It is normally sanctioned depending on the eligibility of each loan applicant. Higher loan amounts are charged more interest, so one should limit the principal to a reasonable sum that they really need; and can repay comfortably without putting much pressure on their finances.
Rate of Interest
Lenders will charge a certain percentage of money when they offer home finance. This is called the interest rate, which varies with each financier. Home loan interest rates are based on eligibility factors like credit score, employment profile, income levels and other relevant details that establish the creditworthiness of an applicant. A higher credit score and eligibility will fetch you lower interest rates and convenient terms; while a poor credit score and eligibility is likely to get you loans at higher interest rates with stricter terms.
The number of years allotted to a borrower to repay the loan fully is referred to as the loan tenor. Usually, loan amounts vary from lakhs of rupees to a few crores, which require a flexible duration to let borrowers repay the loans at their preferred pace. Lenders may extend a maximum tenor of up to 30 years, within which period the debt should be paid.
Applicants can choose a longer loan duration if they wish to pay smaller EMIs every month. But this will increase their overall interest outgo. Therefore, one should try to restrict the loan interest component that constitutes a fair chunk of their credit cost. It is always recommended to pay higher EMIs, if your income permits you to do so, and select a shorter tenor.
Individuals can enter the three requisite values to compute EMIs through an online home loan EMI calculator with the steps mentioned here:
- Visit the official website of your lender
- Navigate to the home loan calculator
- Enter the home loan amount, interest rate and tenor in their respective fields. Alternatively, you can also use the slider to adjust these values
- The results will be displayed in an instant. It will show you how much EMI you need to pay per month, the interest amount and the total payable sum. You can also view the break-up of loan repayments, comprising the repaid principal amount and the interest paid till the end of the loan tenor.
The numbers calculated by an EMI calculator for home loans may differ from the actual figures computed when you meet lenders for discussing your housing loan terms and conditions. This may happen because the lenders’ interest rates could vary depending on market conditions, applicant eligibility and additional loan-related charges. Furthermore, try to restrict the EMI pay-outs to 40% to 50% of your monthly earnings. Even lenders prefer a similar percentage of income availability when extending loans. Anything higher might render your remaining salary insufficient to run a smooth family life or meet other investment goals.