Given the rising cost of real estate in India, buying a house can prove to be a challenging task without an external source of finance. An increasing number of home buyers are opting for home loans to fund their house purchase. However, before opting for such housing credit, one needs to have an exact estimate of the EMI amount or check their affordability to repay the loan. For this, one can take advantage of online home loan EMI or affordability calculators. The advantage of using such calculators is that you can narrow down your search on properties that fit into your budget. You can also organize your finances better when you know how much down payment you will have to make and how much you will have to pay as Equated Monthly Instalments (EMIs).
Calculating monthly EMIs on home loans is an easy process. You can do this online or manually as per your convenience. The process for both the method is explained below:
Method 1: Calculating via online EMI Calculator/Affordability Calculator
Step 1: Go to the Home Loan EMI/ Affordability Calculator page of the financial institution or any Fintech portal.
Step 2: Enter the following information in the calculator:
Step 3: Once you enter the required information, you will be able to see your monthly EMI payment.
Method 2: Calculating manually via EMI calculation formula
You can also calculate home loan EMIs by using a manual formula as well.
The formula for Home Loan EMI Calculation is:
EMI = [P x R x (1+R) ^N]/[(1+R) ^N-1]
E: Equated Monthly Installment,
P: Principal or loan amount,
R: Rate of Interest per month
N: Number of monthly installments or loan tenure in months
Let us understand the home loan EMI calculation with the help of an easy example-
Mr. Batra borrowed a home loan amount of Rs. 3.5 Lakhs at 8.65% rate of interest per annum. The tenure of the loan is 360 months for 30 years. After applying this formula, you can calculate your home loan EMI, the monthly installment amount comes up to be Rs. 27,285 and EMI to be paid in a year comes out to be Rs. 3,27,420 i.e. (Rs. 27,285 * 12).
Factors affecting Home Loan EMIs-
Principal amount – It is the amount of loan that you initially borrowed. It is directly proportional to the EMI. The higher the loan amount, the higher will be your EMI.
Tenure – Tenure is the time you take to repay the borrowed amount. It is inversely proportional to the EMI. The longer the loan tenure, the lower will be your EMIs. The loan tenure is determined based on your present age and retirement age at the time of the borrowing. The longest loan tenure offered to banks in India is 30 years.
Rate of Interest – The interest rate is what you pay for borrowing the loan. Please remember, the rate of interest may vary from one financial institution to another. The higher the rate of interest, the higher will be your home loan EMIs. Try to find a lender that offers you the lowest interest rates, it can help you lower your EMIs. The lower the rate of interest, the lower will be the total cost of your loan.
Benefits of Home Loan EMI/Affordability Calculator
There are many advantages of using the EMI calculation tool to calculate your home loan EMIs. They are listed below:
Easy to use: Using an online EMI calculator is very easy. Anyone can use this calculator to evaluate his/her home loan affordability. You just need to enter some of the details such as the loan amount, interest rate, and loan tenure. After entering these details, you will be shown the monthly loan EMIs that you need to pay.
Give accurate results: There might be chances of mistakes when you do the mathematical calculation manually to find out EMIs on your home loan. It may lead to choosing the wrong loan offer. Thus, with the help of this calculator, you can get a chance to do multiple variations and make an informed decision.
Compare loan offers: You can use the loan calculator to compare loan offers from various banks and other financial institutions. The results will show you the total cost of each loan along with their EMIs. This will help you choose the best home loan option.
Choosing the right tenure: Knowing your EMIs beforehand will also help you in choosing the right tenure of the loan. If you pay higher EMI, you can choose a shorter loan tenure and pay off your loan at the earliest. Otherwise, you can extend your loan period and pay a more comfortable EMI.
Free of cost: This is one of the biggest advantages of using the online home loan EMI Calculator. One can use this financial tool as many times to know his/her loan affordability and make an informed decision according to their requirements.