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These days, many banks and NBFCs are offering home loans and borrowers have plenty of options to choose from. It is easy to get approved for a home loan and buying a home is not as difficult as it once was. However, borrowers must be extra careful while availing a home loan – the rule is simple: borrow what you can easily repay!
So, how does one figure out the loan amount one can easily afford to repay? One way to accurately know this is by using a home loan EMI calculator: A home loan EMI calculator is an online tool that borrowers can use to calculate the loan amount they are eligible for as well as figure out the EMIs they can afford to pay each month.
Before we discuss how one can use the home loan EMI calculator to calculate their monthly EMIs, let us understand some of the terms that you will come across while using this tool.
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Terms You Must Be Aware of While Using a Home Loan EMI Calculator
Principal Amount
Home loan principal is the loan value that your lender has sanctioned or approved. Borrowers pay interest on this value.
Down Payment
Banks and lenders usually sanction 80% to 90% of a home’s value as a loan. The remaining amount must be arranged by the home loan borrower. Lenders ask borrowers to arrange this money to ensure they have a stake in the property and therefore, chances of loan default are low. Borrowers should try and arrange for the highest down payment they can comfortably make to reduce their principal amount and therefore, their total interest outgo.
Tenor
Loan tenor is the period over which a borrower has agreed to repay the loan. Home loan tenor can extend up to 30 years. However, most home loan borrowers choose to repay the loan over 15 to 20 years. Keep your tenor short and become debt-free as soon as possible if you can afford to pay high EMIs. On the other hand, if you want to keep your EMIs affordable, opt for a long tenor.
Home Loan Interest Rate
The home loan interest rate is the rate that the lenders charge for lending money to borrowers. Currently, home loan interest rates vary between 8% and 12%. Borrowers should try and get the lowest home loan interest rates possible if they want to make their EMIs affordable.
Now that we are clear on these terms, let us look at the formula used to calculate EMIs.
EMI = (P*R*(1+R)^N)/(1+R)^N -1)
Here,
P refers to the principal loan amount,
R is the rate of interest,
and N is a loan tenor in months.
Different Methods of Calculating Home Loan EMIs
Let us now look at some of the different methods of calculating home loan EMIs.
Manual Calculations
It is possible to calculate one’s home loan EMIs manually. However, as is evident, the formula used for EMI calculation is a tricky formula that creates scope for errors.
Using Excel
It is possible to calculate home loan EMIs using Excel as well. However, to be able to do so, one must be familiar with Excel formulae and functions. Since most people are not very comfortable with Excel, the best way to calculate EMIs is discussed in this last option.
Home Loan EMI Calculator
The home loan EMI calculator is an easy-to-use tool that borrowers can use to calculate their EMIs with respect to a specific loan amount. Home loan EMI calculators are easily available online. Simply go to your lender’s website and access this tool. Using it is easy too. All one needs to do to use a home loan EMI calculator is enter the loan amount they wish to borrow, the loan tenor for which they wish to borrow the amount and the rate of interest they expect/know will be offered to them. Simply enter these three values and the calculator will give you your tentative EMIs.
Benefits of Using a Home Loan EMI Calculator to Calculate One’s EMIs
One can calculate home loan EMIs using several different methods. However, it cannot be denied that using a home loan EMI calculator is one of the best methods. Let us look at the benefits of using this calculator and give you reasons why you must use this tool.
- A home loan EMI calculator is quick and accurate.
- Aspiring home loan borrowers can try various combinations of loan tenor, loan value and rate of interest to arrive at home loan EMIs that work best for them.
- Borrowers can compare offers from different lenders and choose to go with the most lucrative offer.
- One can use a home loan EMI calculator at any place and at any time. All one needs is a smartphone or a laptop and a good internet connection to be able to use this tool.
Final Words
Before committing to a home loan, borrowers must first understand their EMI obligation and avail of a loan only when they know they will be able to comfortably repay the loan they have taken. A home loan is a long-term commitment and when taken after improper planning, a home loan can easily become a burden. A home loan EMI calculator is a handy tool that any aspiring home loan borrower must use to understand their EMI obligation. There are many ways of calculating EMIs, but using a home loan EMI calculator is most certainly the best way to do so.
