A home loan is a secured loan that borrowers repay for an extensive period which can be up to two to three decades. Borrowers of home loans have to pledge the property they are purchasing as a mortgage. Therefore, they must carefully plan how much they must borrow as home loans from financial institutions.
To plan one’s home loan wisely, it is important to calculate their housing loan EMI before applying for one. This article will provide a comprehensive guide on calculation of their monthly mortgage payments.
What is a Housing Loan EMI?
When a person opts for a home loan, financial institutions offer an opportunity to repay the amount as monthly payments. For this, he/she will have a predetermined tenor. This small monthly payment is referred to as Equated Monthly Instalment or EMI. One needs to pay this amount every month.
Missing out on EMI repayments can lead to consequences like huge interest rates and outstanding amounts. Defaulting on a series of housing loan EMI can also compel the financial institution to forfeit the property they place as the mortgage. The EMI is composed of two components – the loan amount and interest component. The loan tenor tends to affect the current home loan interest rates and EMI. If one wishes to pay low EMI, they should consider going for long term housing loans
How to calculate housing loan EMI?
It is important to calculate home loan EMI before applying for a home loan. Calculating housing loan EMI beforehand allows one to know their current financial standing and provides an idea of how much amount they must opt for. This also helps in planning future finances accordingly.
To calculate the home loan EMI manually, one can use the mathematical formula below.
EMI= {P x R x (1+R)^N} / {(1 + R)^N – 1}
Here,
P= Loan amount
R= Rate of interest by 12 by 100
N= Number of repayments (in months)
Let’s understand the working of housing loan EMI with an illustration.
Mr A took a home loan of Rs.1,00,000 from XYZ Bank for 10 years at an interest rate of 8% per annum. What will be his monthly EMI?
According to the question,
P= ₹1,00,000
R= 8% or 8/12/100=0.006%
N= 10 years= 120 months
By placing the values according to the formula,
EMI= {1,00,000 x 0.006x (1+0.006)^120} / {(1 + 0.006)^120 – 1}= Rs.1,213
So, the monthly EMI of Mr A will be Rs.1,213 for 10 years. He would have to pay a total interest of Rs.45,593.
How does a housing loan EMI calculator work?
Calculating home loan EMI beforehand allows an individual to go for a loan amount that can give him or her a low interest rate. Interest rates of financial institutions also depend on the repo rate set by RBI.
Manual calculations can be quite hectic and time-consuming. Additionally, one might not get accurate answers by calculating housing loan EMI manually. To get an accurate answer instantly, he/she can opt for an online home loan EMI calculator. An individual can easily use this tool online without paying any additional charges.
To use this tool, one simply needs to type in data like loan amount, annual rate of interest and loan tenor. Some calculators also provide a slider to easily choose the parameters. After he/she enters this mandatory information, the calculator will instantly provide his/her monthly EMI. It will also display their total repayment amount at the end of tenure and also their total payable interest.
After calculating their home loan EMI, one can have a clear idea of whether they are eligible for low housing loan interest rate.
Perks of using housing loan EMI calculator
Here are some advantages of using online housing loan calculators to compute home loans over manual calculations.
- Saves from manual calculation
Calculating EMI for long tenors manually can be quite confusing. It also reduces the chances of getting accurate answers in one go. One small mistake and the person has to redo his/her calculations again.
Online housing loan EMI calculators eliminate this struggle by providing accurate answers instantly. One can use this calculator anytime or anywhere on their mobile or laptop to check their monthly EMI payments.
- Opt for interest rate comparison
Housing loan EMI calculators offer less time-consuming ways to check interest rates of different banks. One can enter the required parameters in the given spaces and check their EMI in no time. Using these calculators one can conduct a comparative study to know which home loan from which financial institute will suit their needs more.
- Helps to plan finances better
With an online housing loan EMI calculator, one can analyse their home loan EMI with an infinite number of combinations. This allows them to choose the most suitable loan amount and tenure for home loan before applying. By doing so, they can plan their future finances while applying for loans. In this way, paying EMI will not be a financial burden and he/she can address any emergency without disturbing monthly mortgage payments.
- Breakup of payments
If one observes the housing loan EMI calculator, he/she will notice that this calculator provides a breakup of their total payable interest and total payable amount along with their monthly EMI. A manual calculation will require one to calculate them separately which will consume more time. With instant and accurate results, they can decide on a suitable home loan amount for themselves. They can also check their pre-approved offers by entering their names and other basic details easily.
By calculating monthly mortgage payments beforehand, one can strategically plan their finances for the long run. A housing loan EMI calculator allows the loan applicant to evaluate their EMI accurately in a short span and opt for a loan amount that can attract a lower interest rate for the given tenor.
