Thursday, September 29

How to Calculate Home Loan EMI?

RBI reports that Indians spend more of their income to service home loan EMIs. A larger section of people takes quite high loans as the average house price exceeds 50 times an average Indian’s monthly income. Home loans last for over two decades. You stay indebted until the principal loan amount and the interest is completely paid off. Therefore, it is crucial to have a clear idea of your finances, affordability, and monthly payments before taking a home loan. There must be transparency regarding the fixed amount of your income that would go for equated monthly instalments or EMI payments. You can seek help from a free online home loan EMI calculator to get a perfect idea of your instalments. 

What is an Online Home Loan EMI Calculator?

An online home loan EMI calculator is an online tool typically available for free on several lender websites. It provides unlimited usage to make your process of EMI calculation simpler. It helps you formulate your decisions much quicker by presenting the exact situation and deal before you. 

Benefits of Using an Online Home Loan EMI Calculator

Using an online home loan EMI calculator has multiple advantages. Some of the key benefits are enumerated below:

  • It helps you understand the payable EMI over a specified tenure and interest as a borrower.
  • It is a free service with unrestricted usage. So, if you have to compare the offerings of various lenders, you can input innumerable permutations to determine an affordable EMI. 
  • You can easily make decisions by altering factors that affect EMI.
  • It saves you from the trouble of manual calculations. Thus, saving your time while giving accurate results.
  • It helps you in budget planning as it tells the accurate EMI amount that you must put aside while planning your budget.  
  • Lastly, it is easily available, and you can access them anywhere anytime.

How to Calculate Home Loan EMI?

A home loan EMI calculator makes use of the following important information: 

  • The principal amount 
  • The loan tenure (in months) 
  • The interest rate 

Your home loan EMI calculator depends on the following formula:

EMI = [P x R x (1+R)n](1+R)n -1

In the above formula, 

  • P = Principal loan amount / Amount you borrow
  • R = Interest rate (fixed or floating)
  • N = Number of instalments or Repayment tenure

So, if you are purchasing a home worth ₹1 Crore and making a 25% (₹25 lakhs) down payment, then your principal amount will be:

₹1,00,00,000 – ₹25,00,000 = ₹75,00,000 

So, you will only enter the principal loan amount, i.e., 75 lakhs, as the lender applies the interest rate on the principal. Each lender offers different interest rates. Therefore, when you take a loan, consider the ones that have minimum interest rates. Also, interest rates fall into two categories: 

  • Fixed interest rate: It remains unchanged throughout the loan period irrespective of the market conditions. 
  • Floating interest rate: It can decrease or increase depending on market fluctuations.

Furthermore, you will have to enter your loan tenure in months in the home loan EMI calculator. Mostly home loans have tenures lasting between 15-20 years. However, you must remember that high-tenure loans come with higher interest rates. 

Some online calculators also have the slider option. Moving the slider left to right helps select the loan amount, interest rate, and tenure. You can change and adjust the figures while the home loan EMI calculator computes your EMI instantly within seconds.

Concludingly, carefully input the values for the principal loan amount (P), interest rate ( R), and tenure (N) in an online home loan EMI calculator and calculate your monthly instalments with ease and accuracy.  

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