Since February 2019, the Reserve Bank of India has collectively slashed repo rates by 250 basis points, leading to significant reductions in various retail loan rates, including the home loan interest rates, the rate cuts have encouraged potential borrowers to avail housing loans at affordable rates.
Borrowers need to calculate their monthly liabilities towards their home loan repayment, keeping the following factors under consideration.
Important factors to consider in home loan EMI calculation
- Principal amount
The principal sum for a home loan is one of the primary values that one needs to enter into a home loan calculator for instalment assessment. Individuals opting for a substantial sum need to pay greater EMIs, while lower loan amounts result in reduced monthly outgo.
One of the easiest ways to manage EMIs is to pay a sizeable portion of the property’s cost as down payment so that the loan amount required is in check.
- Interest rate
Several factors impact your home loan interest rates and must be considered to keep the interest outgo in check, thus reducing the EMIs as well. Applicable interest rates on loan determine the total interest outgo on such a credit. Borrowers must thus know that lower rates result in more affordable EMIs and vice versa.
The credit profile of a borrower also plays a significant role in determining his/her interest charges.
- Loan tenure
The last factor that influences outcomes in home loan interest calculation is the tenure of repayment. While extended terms lower the EMIs, they can also lead to an increase in the total interest payments considerably. Contrarily, a shorter tenure, while keeping the EMIs high, also leads to early loan repayment and reduced total loan liability.
Thus, entering a suitable repayment tenure is critical in the calculation of home loan EMIs.
The formula for home loan EMI calculation which the housing loan EMI calculator works
The online housing loan EMI calculator follows a specific formula for result computation. It goes as –
EMI = [P x R x (1+R) ^N] / [(1+R) ^N-1]
In this formula, the different factors are –
- P = The home loan principal
- R = Rate of interest divided by 100
- N = Tenure for loan repayment in months
Referring to the following examples should help one understand how this formula functions in computing the home loan EMIs as other indicative values.
Suppose a borrower avails a loan of Rs.60 lakh at 7.60% per annum. The tenure for this credit is 20 years (240 months). From this information, one can derive the monthly instalments payable as per the valued opted using the formula mentioned above.
EMI = [60,00,000 x 0.76 x (1+0.76) ^240]/[(1+0.76) ^240-1]
EMI = Rs.48,703
Some home loan calculators even display the total amount that the borrower would be liable to pay by the end of this credit tenure, along with an amortisation schedule. The latter depicts the division of principal and interest components for each instalment.
A home loan EMI calculator also assists potential borrowers in gauging how much principal they can avail without overburdening their finances. Nevertheless, with every new rate cut, housing credit is becoming more affordable in India.
- As per a study, the growth prediction for HFCs in FY2020 stands at 10-14%.
- Fresh home loans of up to Rs.4.5 lakh crore would be necessary to fulfil this growth prediction.
Benefits of using a home loan EMI calculator
While one can calculate home loan liabilities manually, doing so is time-consuming and risky. Here are some of the benefits of choosing a calculator for such computation instead.
- Faster results
Manual calculations can never match the speed of a calculator. In most cases, such calculators made with the tool display results as soon as one enters all relevant details. Manual calculations, on the other hand, take much longer to complete.
- More convenient
Borrowers can easily find such calculators online and use them on the go. If one is aware of the three specific valued of his/her home loan required for EMI calculation, this tool offers ease of usage and makes computation hassle-free.
- Accuracy in results
Home loan EMI calculators are always accurate provided one enters the principal amount, interest rate, and the tenure accurately. Manual calculations can be erroneous, especially when they involve the use of complex formula as in the case of home loan EMI calculations. As even minor errors can leave long-term financial consequences for a borrower, relying on EMI calculators is always wiser.
Reputed HFCs often host these calculators on their websites, ensuring easier access to users.
Some of the best lenders also provide pre-approved offers to accelerate loan processing, making them more convenient. These loans are available on secured and unsecured products, such as home loans and loans against property. One can check his/her pre-approved offer by providing details like name and phone number.
How can borrowers reduce home loan EMIs?
You can reduce instalment payments by following some of the tips mentioned below.
- Limit home loan principal – You can lower monthly instalments when availing advance for your chosen property by making a higher down payment of the property’s price.
- Improve credit rating – Borrowers’ credit profile significantly influences the interest rates on their home loans. Thus, individuals with higher credit scores can avail these advances at lower rates and vice versa.
To improve one’s credit rating, he/she can take measures like making timely repayment of existing dues, maintaining zero delinquencies, availing a balance mixed of secured and unsecured advances.
As monthly instalments or EMIs are among the integral things that you must know before availing home loans, it is always advised to assess the amount via tools like the home loan calculator.
Calculating EMIs before taking a home loan can benefit borrowers significantly in planning repayment. Since such loans come with substantial tenures, you must also make sure to pick a credit for which EMIs are easily serviceable without straining your finances.