When you opt for a home loan, you are expected to keep repaying it by way of Equated Monthly Installments (EMI) without defaulting. So it is important to arrive at a fair amount before your EMI begins. A home loan EMI calculator facilitates the overall assessment of your monthly outgoing by way of EMI without facing financial difficulties.
How to calculate the EMI?
EMI amount can be deduced by using the following formula;
P x r x (1+ r) ^ n / ([(1 + r) ^ n] – 1)
(P = Principal i. e. the loan amount, r = rate of interest per month, n = tenure in months, ^ = ‘raised to’).
Useful tips while calculating the EMI:
- Make sure of the amount that you intend to borrow
- Review your existing financial obligations
- Calculate your home loan eligibility
It is important to consider that a home loan EMI involves a large proportion of your monthly income and it is normally to be paid for a long period. The total amount that you will pay will exceed the the amount which you borrow. A home loan interest rate calculator will tell you the interest rate that you are eligible for and also the total interest rate that you will pay to the Bank. Some of the factors that are taken into account while calculating the the interest rate are;
- Your occupation
Generally a higher interest rate is charged for self employed professionals as compared to the salaried class
- Loan amount
Interest rate may differ according to the loan amount
- Home loan type
Broadly, home loan interest rates are classified as ‘fixed’ or ‘floating’.
A fixed interest rate remains constant during the entire loan tenure, while a floating interest rate may vary due to a change in the Government’s policy decisions or other factors that influence the home loan market.
The following reasons underline the need to calculate your home loan EMI before taking a loan;
- If your EMI exceeds your monthly budget, you get a chance to apply for a lower loan amount
- You can plan your monthly budget and keep your expenditure controlled
- When you know the EMI amount, you may opt to prepay your loan in future when you have surplus funds
With the home loan market being organized, you are at an advantage when you calculate the EMI amount before opting for the loan. Rest assured of a peaceful home loan repayment process after planning your EMI. That way, you will be closer to your aspiration of owning your dream home.