Many dream of owning a home, but high real estate prices make it difficult to buy one with their finances. So it is when people opt for getting a home loan. Are you thinking of applying for a housing loan? You should be aware that the home loan procedure doesn’t commence with the home loan application but with a clear idea of your finances before borrowing a considerable amount. A home loan requires a long-term financial commitment and advanced knowledge of the monthly payments for repaying a home loan to avoid financial pitfalls. This article will inform you about home loan EMI (Equated Monthly Installment) and how you can calculate it.
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EMI (Equated Monthly Instalment)
EMI (Equated Monthly Instalment) is a monthly amount paid by a borrower to the financial institution (lender) to repay the outstanding home loan amount. The best home loan plan pre-specifies the EMI based on the total loan amount, the property’s value, the borrower’s financial condition, credit score, loan tenure, and other factors. Then, a specific sum (EMI) is deducted from the borrower’s account every month on a fixed date until the completion of home loan tenure, and the loan amount is repaid.
Calculation of EMI
Home loan EMI can be calculated either offline by manual calculation or online with the help of an EMI calculator.
Steps for Calculating Home Loan EMI Online
Home loan EMI calculators can be accessed online, and you can calculate your EMIs by filling in the necessary details. Here explained are some steps following which you can calculate instant home loan EMI:
1) Finalize and enter the desired amount of home loan
The first step involves figuring out how much money you need to buy a property and build a house from the bank. It is based on the home loan amount that your EMIs will be determined. Only an applicant who meets pre-specified eligibility criteria is lent a sizeable home loan. Usually, banks offer around 70% to 90% of the total property value as a home loan. Although the final loan amount is determined after negotiating with the lender, you should consider formulating your plan before contacting them.
First, you must determine the total cost of the property you want to buy, including stamp duty, registration charges, and other costs. Next, evaluate the amount you can pay as a down payment on the loan from your savings. By deducting the down payment amount from the total cost of the property, you will determine the entire housing loan you need.
Now that you know the total amount required for a home loan, enter the same amount in the online EMI calculator.
2) Select and enter the right home loan tenure
Now that you have determined the total loan amount you will need to buy a property, next, it’s time to figure out the home loan tenure. Home loan tenure is the period the borrower will repay a loan. Many factors are to be considered to fix the home loan tenure. These factors include the borrower’s age when borrowing funds, financial condition, EMI to income ratio, job stability, and more.
Usually, almost every bank prefers borrowers to repay the house loan by the age of 60-65. The younger the home loan applicant, the longer loan repayment tenure he can opt for. In addition, financial institutions also see that borrowers’ cumulative EMIs do not exceed 50% of their total monthly income. Therefore, a borrower having substantial debt obligation can severely impact the EMI’s home loan tenure and size.
After considering all these factors, assess how long it can take for you to repay your home loan. Next, enter the loan repayment tenure, in years or months, into the online EMI calculator.
3) Figure out and enter the interest rate
In the last step, you need to figure out the interest rate to be charged on your home loan. Financial institutions consider several factors before determining the home loan interest rate: the borrower’s credit score, age, job stability, monthly income, and more. As a result, the interest rate varies from bank to bank and usually ranges between as low as 6% and as high as 25%.
Moreover, a borrower needs to determine if they are comfortable with a fixed or floating interest rate. After figuring out the percentage and type of interest rate, enter it into the home loan EMI calculator.
4) Calculating the EMI
Once all three values- loan amount, tenure, and interest rate have been entered, click on ‘calculate.’ The home loan EMI calculator will calculate the accurate EMI payable on the home loan within a few seconds. Not only can you calculate EMIs using an online home loan EMI calculator, but you also can change or adjust it according to your suitability.
Calculating Home Loan EMI Mathematically
Home loan EMIs can be calculated with the help of the following mathematical formula:
- EMI = [P x R x (1 + R)N] / [(1 + R)^N – 1]
Here,
- P = Principal home loan amount
- R = Rate of interest
- N = Home loan tenure (in months) or Number of EMIs.
Conclusion
Now that you know the steps to calculate home loan EMI, you can determine the same before you apply for a housing loan. Online EMI calculator and mathematical formula are the two ways to calculate house loan EMIs. If you look forward to finding EMI for your home loan, consider using an EMI calculator for error-free calculation. Also, you can use an online EMI calculator several times till you calculate EMI suitable for your budget. Knowing the size and number of EMIs, you can pay during the home loan tenure can help you plan your finances better.
