If you are already an existing home loan user or applying for one soon, you must be aware that EMIs consume a large portion of your earnings. You have to manage these EMIs well before even signing the agreement. You should ensure the EMIs do not dent your expenses. Therefore, lenders have the home loan EMI calculator at perusal to make your life easier.
Once the vicious circle of EMIs begin, you have to cut down on your monthly expenditures or plan them well. Even a slight default in the housing loans can lead to a penalty and negatively impact your credit report. You need to plan your EMIs such that it does not hinder your household expenses.
Consider the following factors while planning your housing loan EMI:
1) Earnings: If you have a stable job in place, the lenders predict you can make your EMI payments on time. Thus, in the home loan calculator, you can have higher EMIs. Initially, it may prove to be a costly affair, but in a few years, it may not seem a burden at all. If you do not have existing debt, lenders ask you to pay only 40 per cent of your income towards house loans. If you sense you will earn a higher salary in the future in the form of hikes, bonuses, incentives, you can continue paying higher EMIs. It will eventually reduce your burden.
2) Expenditures: While using the EMI calculator for housing loan, you must not just focus on current expenses but also the future progresses. Your current and future spending could include family costs, medical fees, kids’ expenses, lifestyle expenses, personal expenses, etc. Your EMIs should also remain unaffected by inflation rates. So, play safely while deciding the home loan EMIs.
3) The standard of living: Your lifestyle gets affected once you have decided on the EMIs. Right from dining to travel to entertainment everything should be controlled as a large chunk of your income goes towards the EMIs.
4) Loan tenure: If you can pay a huge chunk as EMIs in shorter tenure, then you have to divert a significant part of your salary towards it. However, if you are not comfortable with it, you can opt for 15 to 20 years of loan duration. If you are comfortable spending a portion of your income for decades, then opt for longer tenures and pay them slowly and steadily. Remember, longer tenure means shorter interest rate and vice versa.
5) Interest rates: Many today prefer floating home loans than fixed ones. The latter is higher while the floating prices change depending on the market conditions and lenders. Thus, your EMI amount varies as the years go by. Therefore, you have to be prepared to shell out higher EMIs for some months.
While using the home loan EMI calculator, you can add the interest rates, principal amount, and tenure to know the loan amount you are eligible for.
The EMI calculator formula is as follows:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
EMI = equated monthly instalments
P = principal amount or borrowed loan amount
R = interest rates levied on the loan
N = loan repayment tenure
It is not easy to calculate your home loan on an excel sheet as errors could happen. The calculator offers your accurate results and saves time, as well as, efforts.