Buying a house is a desire that each one of us holds in our hearts. But as amazing as it to have a house of your own, it is a decision that involves a large amount of investment. This investment usually includes home loans too, that is gradually repaid to the lender in the form of EMI’s.
What is EMI?
EMI– EMI or equated monthly installment, as the name suggests, is one portion of the equally divided monthly outgoes to clear off an unsettled loan within a specific time frame.
The EMI is dependent on numerous factors, such as:
1) Principal amount borrowed
2) Rate of interest on the principal amount
3) Term of the loan
4) Monthly/annual resting phase
“What is Home Loan EMI?”
It means a static amount of payment that a borrower pays to a creditor on a stipulated date every month as reimbursement of the home loan taken. The acronym of EMI is Equated Monthly Installment.
EMI = Principal loan amount + Interest rate on the principal amount. This is paid through auto-debit guidelines to the bank or with post-dated cheques.
“How is my Home Loan EMI calculated?”
You should know the amount you are paying each month as an Equated Monthly Installment (EMI) or what you are going to pay as a loan installment to your creditor. The EMI is calculated based on patterns of the following considerations namely principal amount, interest rate, tenure of loan and computation method. If you are planning to apply for a home loan, then you must compute your EMI first. This will help you to measure your affordability to repay the loan.
You will get three options to determine your EMI- manually, with the help of an excel sheet and with the assistance of an EMI calculator.
You can choose any of these measures, but you need to know three factors- the principal amount of the loan, tenure and the rate of interest of the loan. Based on these three factors, you either apply the formulation of EMI reckoning or choose the easiest way by using a calculator.
All financial organizations offer home loan EMI calculator on their websites. This is the simplest and the most convenient way of calculating the EMI. You need to put the values of those factors and you will get the exact EMI amount that you need to pay every month to the creditor.
EMI Calculation Formula
Here, E refers to EMI, P implies for principle, R implies the rate of interest every month. N signifies the tenure of the loan. The monthly payment amount persists fixed but with time, you will repay less towards interest and more towards the principal.
For instance-
Borrower X with 5 years of career experience makes Rs 70,000 a month. He wants to acquire a property worth Rs 50,000,00. How much home loan he can get on his salary? What would be his monthly installment?
The entitlement for the total home loan amount will be around Rs 42,50,000/- And, the E.M.I would stand about Rs 40,033 and this would be for a tenure of 20 years.
Use home loan EMI calculator to calculate EMI with more precision:
A home loan calculator is an online gizmo available to all. You enter personal details in the calculator such as the loan amount and the interest, and you get the equated monthly installment (EMI) for the tenure.
You can use the calculator to make a notified choice and meet your financial supporting goals. The tool will help you realize the most appropriate repayment amount based on your eligibility and necessity.
Factors That Affect the Home Loan EMI
When calculating your EMI, the calculator includes all the parameters that influence it. Let’s look at the numerous factors that impact your monthly repayments:
- Principal: The principal amount is the loan amount you initially borrow from the lender. It is directly relational to your EMI. Greater the loan amount, the greater the EMI.
- Interest Rate:The interest rate is what you repay for borrowing the loan. In short, it shows you the cost of your loan. It differs from one bank to another. The higher the interest rate, the higher the EMI will be. Finding a money lender that offers you the lowest interest rates can help you lower your EMIs. The lower the interest rate, the lower the total cost of your home loan will be.
- Tenure:The period you take to repay the amount you borrow is called tenure or the period of the loan. The tenure is inversely proportional to your EMI. The longer the loan tenure, the lesser your EMI. The loan tenure is finalized based on your age at the time of borrowing and your retirement age. The longest loan tenure offered by banks in India is 30 years.
- Processing Fee:This charge is a percentage of your loan amount or a minimum or maximum fee decided by the lender. It is the fee that the bank charges to process your home loan application. You can verify this amount from your loan documents. At least a part of this fee will be owed at the time of application. And your lender may not reimburse this amount even if your application is rejected.
- Prepayments:As stated earlier, making prepayments on your home loan can help you reduce the outstanding principal. This, in turn, decreases your interest charges. And both together contribute to dropping your EMIs if you prefer to keep the tenure constant.
Can the Home Loan EMI Change or is it Fixed?
Your housing loan EMI is typically a fixed amount. But there are certain conditions under which it can change. Let’s look at some of these instances:
Flexible EMIs: If you have chosen for flexible EMIs such as in the case of step-up or step-down property loans, then there will be an alteration in your loan EMIs. In the case of step-up loans, your EMI will gradually rise over the tenure. In the case of step-down loans, your EMIs will cut down as time passes.
Partly Disbursed Loan: In the case of partly disbursed home loans, the pre-EMIs will intensify with each disbursement.
Loan Prepayment: Prepayments influence your EMIs as well. You can either choose to reduce the EMI for the same loan tenure or reduce the loan tenure and keep the EMIs persistent. The latter is more advantageous since you will pay lesser interest.
Rise in the floating interest rate: Whenever the repo rate fluctuates, the floating rate of interest also changes. If the floating rate surges, the lender will normally increase the loan tenure while keeping your EMI static. If the new tenure outdoes the maximum period permitted, then the bank may hike your EMI.