We all look forward to buying our own home one day. Homeownership is a part of the successful life that we all aspire for. However, buying a house is a serious financial commitment that requires careful planning. A home loan can provide you the financial resources that you need to fulfill this dream. Our home loan EMI calculator can help you calculate your home loan EMI easily. Knowing your EMI helps you to calculate your monthly budget and make your goal achievable.
EMI Calculation formula
Most Home Loan EMI Calculators work based on the following mathematical formula –
EMI = [P X R X (1+R) ^N]/[(1+R) ^N-1]
EMI – Equated Monthly Instalment
P – Principal amount (the amount borrowed as a loan)
R – Applicable rate of interest (interest rate should be monthly)
N – Loan tenure or the number of EMIs to be paid (tenure should be in months)
You can calculate your EMI with the help of this formula. This method can be time-consuming. It is much easier to calculate your EMI by using the online Home Loan EMI calculator.
How does home loan EMI calculator work?
This online calculator helps you to know how much EMI you have to pay towards your home loan. You first enter the loan amount that you wish to take. You then enter the term for which you want to take the loan. Finally, you enter the home loan interest rate.
The results show you the Monthly home loan EMI, the principal amount, total interest amount, and the total amount payable by the end of the tenure.
Home Loan Terminology
Taking a home loan can be a complicated process. Here are some of the terms you may come across while taking a home loan. Learn what they mean and their usefulness during this process.
Home loan EMI
EMI stands for Equated Monthly Installment. EMIs are a systemized and easy way to repay the loans that you avail. The amount repayable (the amount you have borrowed and the amount payable by interest) is divided with the tenure of the loan into a uniform amount that is payable per month. Each such monthly amount is known as an EMI.
The bank or the lender offers the loan amount for a specific period known as tenure. You can pay off the loan amount in EMIs within this time. Home loans are generally taken for a period of 15 to 20 years. In some cases, home loans are also offered for a period of 30 years.
Fixed interest rate
Fixed interest means that the borrower can repay his loan at the same rate throughout his home loan tenure. The monthly installment remains set during the entire term of the loan.
Floating interest rate
A floating interest rate changes according to the market conditions. If you take a home loan with a floating interest rate, you may pay a different amount each month.
Loan amortization is the process by which debt is reduced through regular payments during the loan tenure. Though EMIs remain the same during the loan period, the amount is credited towards the principal amount and the interest to be paid. Usually, the initial installments contribute more towards the interest amount, and the later installments contribute more towards the principal amount.
The loan amortization schedule is a table that gives the details of the repayment amount, principal, and the interest amount through every year of the loan. The loan amortization schedule provides the road map towards the repayment of your loan and identifies the ideal points that you should be at through the cycle.
What are the advantages of knowing home loan EMI in advance?
The affordability of a home loan depends on your EMI, as this is the amount that you have to pay consistently for years. Knowing your EMI helps you to decide whether you can spare that much amount every month or not. It also allows you to –
1. Decide how much loan to take
You can use the home loan EMI calculator to arrive at an amount that fits your monthly budget. You can alter the tenor or the loan amount to come to a more affordable EMI. Keep adjusting until you come to the most comfortable figure.
2. Plan out repayment
After you have figured out how much you can afford to borrow based on the current interest rate, you can change the tenor to reach a comfortable EMI amount. You must consider all your other financial commitments and think about where you can make some adjustments. This planning is essential to ensure that all your EMIs are paid on time and do not lead to any additional stress. This process also helps you to avoid any EMI bounce charges.
3. Plan prepayments
Knowing your EMI in advance can also help you to plan prepayments of your loan easily. You can make prepayments to reduce interest payments and pay off your loan sooner. You can plan your investments so that you can make a part prepayment of your home loan.
Part payments help to reduce the outstanding loan amount, which then reduces the interest amount due. When you don’t change your EMI after making part payment, you increase the contribution of your EMI towards principal repayment. Thus the loan gets repaid faster.
Do home loan interest rates influence home loan EMIs?
Yes, the home loan interest rate is a significant factor that influences the EMI. The higher the rate of interest, the higher is the home loan EMI. This can reduce your ability to take on a larger home loan. When the home loan interest is lower, the EMI also comes down, which improves your ability to –
- Take a larger loan
- Top up your current loan
- Reduce your loan tenure
- Make more prepayments
- Take a second loan
If it is possible, you must prepay your loan as much as possible during the initial years. This helps to reduce the interest amount and reduce the burden of the loan.
What is the correct home loan tenure?
Longer home loan tenure can improve your eligibility for a loan. A longer tenure also means that your EMI can stay low. However, a longer tenure can increase your cost of borrowing. In other words, you will pay more money as interest when your loan tenure is longer.
A longer tenure can also interfere with your other goals. You don’t want to be burdened with a home loan EMI at a stage in life when you are retiring or when you have to send your children to college.
So, you must find a comfortable balance between your home loan requirement and your current financial need to come up with the ideal tenure for your home loan. Make different adjustments in the home loan calculator.
A home loan can be a great convenience when you are trying to buy a house. However, it is not a decision you can take lightly. You must do your homework well and assess your payment capability before you finalize your home loan. A home loan EMI calculator can help you determine how much loan you can take comfortably. It can also help you to decide your loan tenure and prepayment plans.