While home loans have become relatively easy to avail these days, the calculation of EMIs still comprises a few essential intricacies individuals must take care of. As assessing the EMI is one of the critical steps in creating a repayment plan, one must also gain an idea regarding the use of a home loan EMI calculator when planning to avail the advance.
Applicants need to gain a clear idea about potential EMI obligations. It is typically for the reason that if calculation of monthly instalments is not accurate, individuals will fail to derive a clear idea about the monthly outgo, and may thus lack in meeting their monthly obligations adequately. Given that home loans create long-term obligations, the need for using a calculator for EMI assessment cannot be stressed enough. However, before that, here’s a look at what EMIs comprise for a better understanding of their calculation.
What is an EMI?
EMI or Equated Monthly Instalments are the fixed monthly repayment obligations bestowed on borrowers towards loan repayment. These monthly instalments are determined based on several factors such as the repayment tenure, eligibility, a borrower’s repayment capacity, etc.
Even though it is the financial institution that sets the EMIs to be paid every month, it is important that the applicant knows of it beforehand, as well. The reason is twofold. Firstly, a borrower will be able to understand the additional expenses that may be incurred with each EMI payment, which amounts to a significant benefit of calculating EMIs before taking a home loan. It should be noted in this regard that not more than 40% of a borrower’s in-hand income should be utilised for home loan EMI payment. Secondly, calculation done by a lender can also be verified, and corrections made on borrower request, if the assessment has been made before applying for the loan.
The calculation of housing loan EMIs can be done via three methods –
- Using mathematical formula
- Using an excel sheet
- Using home loan EMI calculator
While the first two involve manual calculations and lengthy procedure, EMI calculation with a dedicated financial tool is much simpler and convenient.
Home loan instalment computation with an EMI calculator
The home loan EMI calculator helps borrowers in calculating the monthly instalments to be paid to the lender every month until full repayment of the loan. The monthly instalments are based on the loan principal availed, the interest rate applicable, and the tenure selected. Based on a specific home loan amount, duration, and the rate of interest, the home loan EMI calculator will indicate how much instalment amount a borrower needs to pay.
The following is the method of using an EMI calculator for such computation. The input to be entered include –
- Amount of home loan to avail
- Tenure of the loan
- Applicable rate of interest
The interest rate of home loan is likely to vary among different lenders. You must thus enter the interest rate offered by a lender you chose for such home loan application.
Values entered in an EMI calculator can be used to arrive at an instalment value that fits a borrower’s repayment capacity.
A home loan EMI calculator will also indicate three specific outcomes –
- EMIs payable
EMI indicates the amount that has to be paid every month until full repayment of the loan.
- Total interest payable and total repayment liability
The calculator also lends an insight into the total interest a borrower would pay by the tenure’s end along with the total repayment liability comprising the principal and interest amount.
- Amortisation schedule
An amortisation schedule reflecting in the home loan EMI calculator indicates the break-up of principal repaid, and interest paid out of each month’s EMI until the tenure’s end. The balance which is outstanding after payment of monthly EMI will also be exhibited in the amortisation schedule.
The formula used for calculation of EMI goes as –
EMI = [P x R x (1+R) ^n] / [(1+R)^ n-1]
P = Principal loan amount,
R = Interest rate,
n = number of instalments
Once calculated, individuals can proceed to apply for a suitable loan amount with the selected lender.
Leading financial institutions also extend pre-approved offers to make financing hassle-free and quick for borrowers. These offers include various financial products, including home loans and loans against property. Borrowers can check their pre-approved offer online only with a few basic details.
Alongside, also check for other features like tenure flexibility and repayment options when applying for a home loan. A well-thought-out approach to availing a home loan can go a long way in ensuring easy management of such credit repayment.