The first thing that a borrower needs to consider while opting for a home loan is the EMI amount. EMI calculation for a home loan is a complicated process involving a complex equation. It can be challenging and time-consuming to do it manually.
Alternatively, you may plan ahead by using a housing loan EMI calculator. Since you would have to repay the amount along with the agreed-upon interest within a stipulated time frame, it’s pivotal that you determine the EMI amount accordingly.
Home Loan EMI Calculator- How Does It Work?
You need to input specific details in the home loan EMI calculator to help it compute the EMI so that you know how much loan EMI you can afford.
- Interest Rate: The interest levied on loan amount varies from one institution to another. This interest could be floating or fixed. In case, it is fixed, the rate wouldn’t change throughout the tenure, whereas if it is floating, the interest rate might fluctuate depending on market conditions and RBI policy and hence, your EMI amount will differ.
- Loan Amount: This amount depends on the property as well as a borrower’s repayment capacity. A lending institution typically lends up to 80% of what the property value as loan. This is also termed as the principal. The interest is charged on this amount. The amount calculated along with interest is further divided into equal payments as EMI. You might be eligible for a high loan amount, but make sure that the EMI is not more than 40% of your monthly income. However, before any of these, you need to be aware of the home loan eligibility and check whether you are eligible for one and if so, for how much. You can use an eligibilty calculator for the latter.
- Tenure: A certain period is allotted for loan repayment. Since home loans are high-value long term credits, tenures can last up to 20 years. However, you must keep in mind that longer the tenure, more interest you would be required to pay. Shorter tenure entails a higher EMI value, but the total interest you may have to pay is substantially lower.
Once you input these variables into a loan EMI calculator, it provides you with the accurate EMI value instantly. After you are satisfied with your chosen EMI amount, you may approach reputed financial institutions to avail a home loan.
What is the Formula to Compute Home Loan EMI?
EMI calculation manually is a tedious procedure as well as time-consuming. To calculate EMI correctly, the home loan EMI calculator can be a convenient solution. You must be aware of the amount, rate of interest and tenure. It is imperative that you input the home loan interest rates and tenure in terms of months in order to achieve accurate results.
For calculation, the following formula is used by an EMI calculator:
EMI = [P x R x (1 + R) ^ N] / [(1 + R) ^ N – 1]
The letters in this formula, represent:
- EMI stands for equated monthly installment.
- P is the loan amount borrowed, also known as the principal amount.
- R is the rate of interest charged on the amount borrowed.
- N is tenure or the stipulated time frame for repayment.
Even after learning the formula, the process of calculation might still seem complicated and time-consuming. It is wise to learn the significant benefits of calculating EMIs before taking a home loan. Using an EMI calculator before availing a home loan would turn out to be one of the practical solutions for your financial planning.