Your monthly payment for a home loan will be heavily influenced by the interest rate you receive. When obtaining a loan, it is important to conduct research on various lenders so that you can choose one offering you the lowest interest rates and best terms and conditions. Considering the size and length of a typical home loan, monitoring your interest rate makes all the more sense. So, how to calculate EMIs for a home loan? Let’s find out. But first, you should know what an EMI is.
What Is the EMI for a Home Loan?
You can get a home loan from any lender to buy a house. When you take out a home loan for a specific sum of money for a predetermined number of years from a lender, you will pay back the loan on a specified interest rate. The EMI is the fixed monthly payment for a home loan that covers both the principal and the interest.
If we are discussing EMIs, we must also discuss a home loan EMI calculator.
What is a Home Loan EMI Calculator?
The Home loan EMI calculator is a useful online tool that can help you determine the EMIs you can easily pay off. The home loan calculator will calculate your home loan EMIs based on three values: principal, rate of interest and tenor. After you fill out the information, you will see how much EMI (Equated Monthly Instalments) you will need to pay to your lender each month to pay off the home loan within the time period you have chosen.
How Do Home Loan EMI Calculators Work?
With the following mathematical formula, you can figure out how much your home loan EMI will be:
EMI = [P*R*(1+R)N]/[(1+R-1)]
where P, R, and N are all variable quantities. The EMI value will change if you change any of the three variables.
“Principal Amount” is what the letter P stands for. The amount you borrowed from the bank in the first place is the principal amount. This is what will determine the interest. R stands for the lender’s set interest rate. The loan term is N years long. EMIs are measured in months because they are paid every month.
Let’s look at an example of this formula to see how it works:
So, if you get an INR 42 lakh home loan with an average interest rate of 12% for 20 years, the approximate EMI will be:
P = 42 lakh, R = 12/100/12 or 0.01 (convert to months), N = 20 years or 240 months
EMI = [4200000 x 0.01 x (1+0.01)^240] / [(1+0.01)^240-1]
EMI = INR 46,246.
So, your calculated EMI would be INR 46,246.
Why Using a Home Loan EMI Calculator is a Good Idea
There are many good reasons to use any online home loan calculator. Here are the top 7:
It’s easy to use
All you have to do is plug in a few key pieces of information and the housing loan calculator will display your EMI value within seconds.
You don’t even have to sign up to use the calculator and you can use it as many times as you want without paying any charges.
Helps You Understand Various Charges and Costs
This tool helps you understand the costs associated with your loan, such as the total interest you will have to pay and the processing fee. Since banks and other financial institutions show them as a percentage of the loan amount, knowing the real value can help you figure out how much the loan really costs.
Helps You Choose the Right Term
Using a home loan calculator to figure out your EMI also helps you choose the right tenor for you. If you can afford to pay a higher EMI, you can choose a shorter loan period and pay off your loan as soon as possible. If not, choose to go for a longer period but keep your EMIs affordable.
Helps You Compare Home Loan Offers
When you want to compare loan offers from different banks, you can use the home loan calculator. The results will tell you how much each loan will cost in total and how much each EMI will be. This will help you figure out which offer would be the best choice for you.
Helps You Manage Your Home Loan
If you have extra money while paying your EMIs, you may be able to pay off your loan early. The home loan EMI calculator will help you understand how prepayments can help you pay off the loan before the end of the term.
Over the next few years, home loans are likely to grow faster than other types of debt. So, all aspiring borrowers must know how to calculate EMI for home loan and how to use a home loan calculator for better financial planning. Hope the information provided in this article will help you in this regard and Norstrat also