A complete guide on how to calculate home loan EMI

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According to a report, there has been a 26% rise in home loan demand in India in the first quarter of 2021. This demand can be attributed to the affordable borrowing rates. Since RBI has not amended the policy rates, housing credit is likely to remain affordable in the coming months as well.

However, before going ahead with the application, potential borrowers should know about their instalments and learn how to calculate home loan EMIs to make a better decision.

How to calculate housing loan EMIs?

Potential home loan borrowers can calculate home loan EMI and interest structure manually using the following formula –

  • EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Here N is the number of monthly instalments, R represents interest rate, and P stands for the principal loan amount.

Here is an example to further simplify the application of this formula –

  1. For instance, an individual avails of a home loan of Rs.50 lakhs for ten years. The interest rate levied on the credit is 6.7%. 
  2. By applying the formula, the EMI amount will stand at Rs.57,300 approximately. At the same time, the total interest payable will be Rs.18,74,100.

With the assistance of this formula, one can easily find the monthly instalment figure before deciding to apply for home loan.

However, a manual calculation can be tiresome and prone to errors, which leads to confusion during loan application and repayment. This issue can be resolved by using an online EMI calculator available. These calculators also offer a detailed breakup of the monthly repayment, helping further in financial planning.

How to calculate interest on a home loan using a calculator?

The steps to use a home loan calculator are as follows.

Step 1: Visit a lending institution’s website and select a home loan EMI calculator from a respective tab

Step 2: Enter the desired loan amount

Step 3: Set a tenor and preferred interest rate to proceed

Step 4: The result will be displayed underneath

Individuals can check the result and evaluate whether the repayment structure matches their financial strength. They can also make endless adjustments to find a loan offer that perfectly matches their repayment capacity.

Besides displaying total interest on home loans and EMIs, this calculator also includes a loan amortisation schedule that includes a detailed breakup of the repayment. At the same time, one should also know the factors that impact instalments to make a decision accordingly.

What are the factors impacting home loan EMI?

Besides the total loan amount, here are some other factors that plays a part in deciding EMIs of a housing loan –

  1. Down payment

Down payments and EMIs share an inverse relation, where a higher initial payment will lower the monthly burden and vice versa. Since making a sizable down payment will reduce the principal amount, naturally, it will lower the EMI burden in the process.

It is important to know that higher down payments will also lessen home loan interest rates.

  1. Tenor

Opting for a long tenor will also reduce the EMI burden. However, a point to remember here is that doing so will crease the total interest outgo as well. Therefore, individuals need to be careful while choosing a loan tenor. They need to find an instalment amount that will meet their repayment capacity, but, without increasing the total cost of borrowing.

  1. Applicable interest rate

The interest rate applicable on a home loan also plays a part in deciding the EMI amount. Hence, one needs to choose a lender carefully, to avail a competitive interest rate, thus, reducing the EMI amount.

Besides a competitive interest rate, leading HFCs also extend pre-approved offers that make the loan application hassle-free. Such offers are usually levied on credit forms such as loan against property, home loan, etc. Individuals can check their pre-approved offers by entering their name and contact number.

These are some essential points that a potential home loan borrower can follow before making a credit application. To calculate home loan EMI, they can apply the mentioned formula or use an online EMI calculator and find the result within seconds.