How does a home loan EMI calculator work?
Are you planning to apply for a home loan but are confused about EMIs? EMI or equated monthly instalment, is one part of the equally divided monthly outgoes to clear off an outstanding loan within a stipulated time frame. Taking a home loan requires a good amount of planning as you will be borrowing a hefty amount. Quick decisions made without planning can sometimes dent your finances badly.
Hence, a home loan EMI calculator helps you make an informed decision about housing loans.
The EMI calculator is an easy-to-use tool and is free of cost. It calculates the monthly instalments that you will pay towards your home loan repayment. It not only computes your EMI but also helps you assess your repayment capacity.
Elements of the home loan EMI calculator:
1) Loan amount:
The home loan amount is the sum of the money you borrow from the bank. The lent amount depends upon property value as well as the repayment capacity of the borrower. Generally, banks only give 80 per cent of the property value as loan. The amount is also called the principal amount. Enter an amount keeping in mind that EMIs cannot account for more than 40 per cent of your monthly income.
2) Interest rate:
Interest rates for home loan vary from lender to lender. There are two types of interest rates: fixed and floating rates. In case of fixed, the interest rate remains constant for the entire loan tenure, and all loan EMIs are equal. However, in the case of a floating interest rate, it fluctuates with any change in the base rate, and hence the EMIs vary.
3) Tenure:
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It is the duration allotted to or chosen for repayment of the loan. Most of the loans are available with flexible tenures. Home loans are long-term loans with extended repayment tenure of up to 20 years, in some cases even continuing for 30 years.
How to calculate home loan EMI:
EMI = [P x R x (1+R) ^N]/[(1+R) ^N-1]
Here, P is the principal or the amount that you borrow
R is the rate of interest levied on the loan amount (the interest rate should be a monthly rate)
N is the tenure of repayment(calculated in terms of months)
Example:
Loan Amount = INR 10 Lakh
Tenure= 30 year
Interest Rate is 8.35%
EMI = INR 7,583
You can find online home loan EMI calculator on the lender’s portals or third-party websites.
