Everyone dreams of having a home to call their own. Since, buying a home requires a huge sum of money, people look for financial aid options that would help in fulfilling their dream. Home loan is a great financial aid that has helped millions realize their dream of having a home of their own. Taking a home loan is convenient but requires a lot of consideration on the borrower’s part. Before applying for a home loan, there are a number of questions that come in the mind of the borrower such as, what will be the monthly installments, will there be additional costs involved, what will be the interest on the home loan, will the offered interest rate be feasible, should I increase or decrease the loan amount, and so on. Finding answers to these questions is important for a borrower to make an informed decision. A home loan EMI calculator can help in taking these decisions without a doubt in your mind. For people who are wondering what a home loan calculator is, read on to find out.
Before we get to the topic of EMI calculator, let us first skim through the topic of EMI as it is a key component of any loan including the home loans.
What is an EMI?
After a borrower takes a loan (be it home loan, personal loan, car loan, or any other loan), the lender expects you to repay a certain amount at a fixed date of each month for the entire tenure of the loan. That certain amount is known as the EMI (Equated Monthly Installment). It is the sum of principal amount and interest. The interest is calculated on the principal amount, which is then distributed every month of the loan tenure. In the early years of the home loan, a large portion of an EMI consists of the interest amount that the borrower is required to pay. As the loan matures, the principal amount gets paid and the payable loan amount decreases. Subsequently, the interest amount becomes lower than the principal amount and then minimal but the EMI stays constant every month barring some exceptions.
The EMI of your home loan is determined by four major factors, which are as follows:
Principal Amount: The principal amount is the actual money that is borrowed from the lender. It is a major factor that determines the EMI that is to be paid by you.
Rate of Interest: The rate of interest is the rate at which the borrower has taken loan from the lender. This is the second most important factor that determines your EMI. Higher the rate of interest, greater will be the EMI.
Loan Tenure: The loan tenure is the period for which the money has been borrowed. Longer the loan tenure, lesser the EMI.
Method of Computation: The method of computation is the method that has been applied to calculate the EMI. Some of the methods used to calculate an EMI includes annual reducing method, daily reducing loans, and monthly reducing loans.
Since EMI is the key component of a home loan, it is important for the borrowers to consider it before applying for the loan. You can calculate an EMI on your own; however, the fastest and accurate method to do so is using a loan EMI calculator. Let’s read further to know what is an EMI calculator?
What is a Home Loan EMI Calculator?
As the name suggests, a home loan calculator is an online tool that primarily helps you to calculate the EMI on a home loan. You can use this online tool as many times as you want and that too free of cost. This easy-to-use online calculator requires a few details of your home loan requirement like rate of interest, principal amount, and tenure. Besides calculating the EMIs, the tool also helps you assess your repayment capacity.
What are its Benefits?
Since home loans are generally of long tenure, the home loan EMI calculator allows you to learn the financial outflow on your loan. Knowing the EMI in advance helps the borrowers to avoid financial strain by planning their budget accordingly. There are various other benefits of using a home loan EMI calculator. Some of them are listed as follows:
- Gives Quick Results: Depending on the method of computation, calculating the home loan EMIs can be a quite tedious process. The loan EMI calculator shortens this lengthy process and gives you accurate results with a single click of a mouse.
- Easy to Use: You don’t need to be trained for using a loan EMI calculator. This user-friendly online platform is easy to use by anyone. To get the results, you only need to fill in simple details about your loan in the designated fields or use sliders for your inputs.
- Allows to Use Multiple Times: Try different combinations by changing the input values as many times as you want. You can change the principal amount, interest rate and tenure multiple times till you get an EMI amount which suits your interest.
- Involves Zero Charges: The home loan EMI calculators are absolutely free of cost. You can use it for ‘n’ number of times without any cost.
- Allows Anytime/Anywhere Access: Since the tool is easily available 24×7 online, the users can use it as per their convenience. If they have the internet connection, they can use it on their mobiles and laptops anytime and from anywhere.
How does It Work?
Home Loan EMI Calculator takes you a step closer to deciding on the home loan you want to apply for but for that you need to enter the numeric values of the rate interest, loan amount, and loan tenure as the calculations are based on these values. The calculator works on two arithmetic calculations – to compute the monthly interest on your loan and to calculate the EMI. Therefore, it is better to use a home loan calculator to calculate the EMI for the loan. Some of the online EMI calculators even show the Amortization table which gives you a clear financial idea of the entire repayment schedule of your home loan payment. The table includes home loan information such as the principal loan amount, period of scheduled payments, the outstanding balance before and after paying each EMI, the EMI, the principal and interest component of the EMI, and the outstanding balance after payment of each EMI. This table primarily helps the borrowers to make important decisions on prepayment or refinance. The table also offers details of interest for tax-related benefits.
How Do You Calculate a Home Loan EMI?
Manual EMI Calculation:
To calculate home loan EMI, you must know the loan amount, loan tenure, and the interest of rate that will be charged on the loan. To calculate the home loan EMI, use the following formula:
EMI = [P x R x (1+R)^N] / [(1+R)^N-1]
In this formula,
EMI is the Equated Monthly Installment
P is the principal amount
R is the rate of interest (monthly)
I.e. if the rate of interest per annum is 12%, the rate of interest per month will be (12/12 = 1%)
‘N’ is the tenure of repayment of the loan
Note: The home loan EMI calculator calculates EMIs on the basis of fixed rate of interest. If your lender offers a floating rate of interest, the EMI will fluctuate on the basis of change in base rates and market rates.
EMI Calculation in Excel:
If you are comfortable doing home loan EMI calculations on Microsoft Excel, choose a cell and enter the following formula:
=PMT(RATE,NPER,PV,FV,TYPE)
In this formula,
RATE is the rate of interest
NPER is the total number of monthly installments or loan tenure
PV is the principal amount
FV is the future value or cash balance once last payment has been made.
TYPE is 0 or 1
If payment is due at the end of the period, TYPE will be 0.
If the payment is due at the start of the month, TYPE will be 1
Calculating home loan EMI on an excel sheet or on a paper is more difficult and time-consuming than calculating it on the online home loan EMI calculator. Also, due to human error, the results may not be accurate. Hence, it is best to use a home loan EMI calculator for the same.
