With lower EMIs, home loans can be lighter on your pocket. To calculate an EMI, you must first understand what is an EMI? It is an equated monthly installment payable to the lender by the borrower on a specific date on a monthly basis. Loan EMIs are usually fixed every month. It consists of the principal and the interest amount. Initially, the interest component constitutes a major part of the EMI, however as the loan term advances, the principal outstanding makes a larger part of the EMI and the interest repayment decreases.
EMI calculator is a great tool to calculate the EMIs that you would have to pay to the bank to repay your home loan. Though mathematical formulae and excel sheet can also be used to calculate the EMI, an online EMI calculator is the most efficient and time-saving method.
How to calculate Home Loan EMI with Online EMI Calculator?
So now let’s suppose, you want to take a home loan. Your first step should not include a bank visit or relying on a friend completely in choosing the home loan. Instead, you should first calculate how much a loan is going to cost you. This cost is the monthly EMI (equated monthly installments) that you need to pay on a regular basis soon after your loan amount is sanctioned to you.
To calculate the loan EMI, you basically have to evaluate the principal amount you are planning to borrow, the interest rate on which the bank is giving the loan (generally home loan being secured in nature has lower interest rate as compared to other loan types, still you must choose the home loan with competitive interest rates and the processing fee levied by the bank. Once you get this information, you can calculate the monthly EMI using installment calculators. Upon calculating, if the EMI is too big, you can look for an option to decrease the EMI either by decreasing the loan amount or perhaps increasing your loan tenure and doing the calculation all over again.
How the EMI calculator works:-
Using EMI calculator is very simple. All you need to do is to visit a website having EMI calculator. EMI Calculator is a tool that will require you to fill in the information like the amount you want to borrow as a home loan, the total duration of the loan, the interest rate charged on the loan by the bank and the processing fee, and you’ll get the results in a matter of seconds.
Mostly EMI calculator works on the basic formula: E = P x r x (1+r) ^n/ ((1+r) ^n – 1)
Here:
E is the monthly installment that you need to pay to the lender on the regular basis.
P is the principal amount that you want to borrow.
r is the interest rate charged by the bank either on a monthly basis or on annual basis. For interest rate charged on an annual basis, r = (annual interest/12) x 100.
n is the duration of the loan in terms of months. So if you select a loan term of 5 years, n will be 5x12= 60.
It is the simplest formula used by most of the EMI calculators. But there are also some calculators that ask for the processing fee and do the calculations of the monthly installments. So you need to check for it and use the right EMI calculator. As far as the processing fee is concerned, it is just a few percentages (1-3%) of the total loan amount borrowed from the bank and since the processing fee is decided by the bank, it may differ for each bank in India.
Puneet Sharma works as a guest lecturer in Delhi. He holds a B.Tech & MBA Degree from the UPTU. With extensive knowledge and experience in various financial products, he also works as a consultant in banking & finance domains wherein he offers advice to his clients in managing personal finance.